23 July 2013
Sir, I have a client having an FD in State Bank of India earning interest income of Rs.200000 p.a. His wife also has 2 FDs in ICICI bank earning an income of Rs.100000 each p.a. Both their incomes accrue in their respective FDs and is transferred to their joint account in South Indian Bank. Both of them are senior citizens. Are they liable to pay tax??
1.First decide clubbing is applicable or not. Husband has gifted money to wife or not??? If gifted then clubbing will be applicable.
If she has earned on her own then clubbing wont be applicable.
2. They wont be liable to tax if the interest income is the sole and only income due to income exemption limit applicable to senior citizen and both of them seems in the exemption limit criteria.
23 July 2013
Income is clubbed only on transfer of an asset without consideration to spouse or son's spouse. In the latter case it is clubbed to the in laws of the sons spouse.
Therefore if FD is acquired by using the money gifted by the spouse, the interest is taxed in the hand of the spouse gifting the money. In case the married woman gets a gift from her husband's parents and makes an FD then the income is clubbed in the hands of the husband's parent making the gift. The vice versa is not applicable for clubbing, i.e. gift made to daughter's husband.
This rule is applicable for all such transfer of asets. If you transfer property to spouse or minor children, the rent / notional rent / wealth tax continue to be assessed in your hand.
Anjithaji, it is advisable to have two joint accounts with different first holders. This could be on E or S basis. Then if each person earns money he deposits the money to the account where his name is first and it becomes easy to prove the beneficial ownership of the funds. In your case if you can prove that each holder purchased the FD with his or her own money (means you will have to prove that the second holder earne own money and deposited into the account) to the extent of the income of the second holder the beneficial ownership of the money will be of the second holder. If you are banking with nationalised bank, only 1K minimum balance is required. Advise you open another account in reverse order.
CAclubindia
