ITR Filing in India: How is Interest Earned on a Joint Account Taxed?

—

by

Himanshu
in ,

When it comes to income tax filing, one area that often creates confusion is interest earned on joint bank accounts. Many families in India open joint accounts for convenience, but the question arises — who pays the tax on the interest earned? Let’s break this down as per current Indian tax rules.

1. Who is Taxed on Joint Account Interest?

  • Both account holders are liable
    Interest earned on a joint account is taxable in the hands of both holders, not just the primary one.
  • Equal sharing is the default
    Unless there is proof of unequal contributions, the interest income is generally split 50:50 between the holders.
  • Contribution-based sharing (with proof)
    If you can show evidence of how much each person contributed (deposit slips, transfer proofs, account statements), then the tax liability can be split according to the actual contributions.

2. TDS (Tax Deducted at Source) on Joint Accounts

  • Banks deduct TDS at 10% if total interest exceeds ₹10,000 in a year.
  • TDS is usually deducted in the primary account holder’s PAN.
  • During ITR filing, both holders can claim their share of the TDS credit as per the split of interest income.

3. Deductions Available

  • Section 80TTA: Non-senior citizens can claim a deduction of up to ₹10,000 per year on savings account interest.
  • Section 80TTB: Senior citizens (60+) can claim up to ₹50,000 per year on both savings and fixed deposit interest.
  • If one joint holder is a senior citizen, they can claim the deduction only on their share of the interest.

4. Reporting in ITR

Here’s how to correctly handle joint account interest in your ITR:

  1. Calculate your share – Either 50:50 or based on actual contribution ratio.
  2. Report under “Income from Other Sources” in your ITR.
  3. Apply deductions under 80TTA or 80TTB if eligible.
  4. Claim TDS credit proportionately, even if deducted under the primary holder’s PAN.
  5. Keep documentation ready – deposit proofs, bank statements, and interest certificates in case of scrutiny.

5. Practical Examples

Example 1: Equal Contribution

Mr. and Mrs. Sharma open a joint FD of ₹4,00,000, contributing ₹2,00,000 each. The bank pays ₹32,000 as annual interest.

  • Mr. Sharma reports ₹16,000 under “Income from Other Sources” in his ITR.
  • Mrs. Sharma also reports ₹16,000 in her ITR.
  • If both are below 60 years, each can claim up to ₹10,000 deduction under Section 80TTA (if interest is from a savings account).

Example 2: Unequal Contribution

Mr. Singh contributes ₹3,00,000 and his daughter contributes ₹1,00,000 into a joint FD of ₹4,00,000. The annual interest is ₹28,000.

  • Mr. Singh is taxed on ₹21,000 (75% share).
  • His daughter is taxed on ₹7,000 (25% share).
  • If Mr. Singh is a senior citizen, he can claim up to ₹50,000 deduction under Section 80TTB on his share.

Example 3: TDS Deduction in Primary Holder’s PAN

A joint FD of ₹5,00,000 earns interest of ₹40,000 in a year. TDS of ₹4,000 (10%) is deducted under the primary holder’s PAN (Mrs. Mehta).

  • Mrs. Mehta contributed 60% of the deposit, her son 40%.
  • Interest split → Mrs. Mehta ₹24,000, her son ₹16,000.
  • In ITR, Mrs. Mehta shows ₹24,000 income and claims ₹2,400 TDS.
  • Her son shows ₹16,000 income and claims ₹1,600 TDS, even though all TDS was deducted under Mrs. Mehta’s PAN. Proper declaration ensures both can claim their rightful share.

6. Key Takeaways

  • Joint account interest is not taxable only in the name of the primary holder. Both must report it.
  • By default, interest is split equally, unless clear documentation shows otherwise.
  • Deductions under 80TTA/80TTB can be claimed individually.
  • Always reconcile TDS and maintain records to avoid mismatches or tax notices.

Conclusion

Handling interest from joint accounts in ITR filing is straightforward once you understand the rules. The most important step is to decide the ownership ratio of deposits and interest and maintain proper documentation. By splitting income correctly and claiming eligible deductions, both account holders can optimize their tax filings and avoid unnecessary scrutiny.

✅ Disclaimer: This article is for educational purposes only. Tax laws change frequently, and individual circumstances differ. Please consult a qualified tax advisor or CA before filing your return.

Featured products