Introduction
Many taxpayers open fixed deposits in the name of their spouse or child. This is very common in India. But while filing the income tax return, the interest income is often shown in the wrong person’s return.
The important point is that taxability does not depend only on whose name appears on the FD. If clubbing provisions apply, the income has to be included in the hands of the correct taxpayer.
If you have FD interest, family investments or income clubbing issues, TaxClear’s ITR filing service can help you report the income correctly.
Main Discussion
The discussion gives a very practical example.
A taxpayer may open an FD in the name of his wife. Another taxpayer may open an FD in the name of his minor child. The FD may be for ₹5 lakh, ₹10 lakh, ₹20 lakh or any other amount.
The interest earned on that FD may not always be taxable in the hands of the person whose name is on the FD.
Where FD is opened in the name of the spouse, the interest may be taxable in the hands of the taxpayer under clubbing provisions.
Where FD is opened in the name of the child, the interest may be taxable in the hands of the parent with higher income.
This is where many taxpayers make mistakes. They show the income in the spouse’s return or assume that because the FD is in the child’s name, the income is not their income.
That is not the correct approach where clubbing applies.
Schedule SPI in ITR
ITR contains a separate schedule for clubbed income. The discussion refers to Schedule SPI.
Schedule SPI is used where income of another person is included in the taxpayer’s hands. If FD interest is taxable in the hands of the taxpayer due to clubbing, it should be reported properly.
This is not just a technical schedule. It is important because it explains why income belonging to another person is being included in the taxpayer’s return.
If the taxpayer does not report clubbed income correctly, mismatch may arise.
TDS Credit Issue
TDS credit can also create practical difficulty.
Suppose FD is in the name of spouse and bank deducts TDS in spouse’s PAN. But if income is taxable in the taxpayer’s hands due to clubbing, then the reporting has to be handled carefully.
The taxpayer should not blindly claim TDS or ignore income. AIS, TIS and Form 26AS should be checked for both income and TDS reporting.
This is why FD interest cases should be reviewed before filing.
AIS and Bank Interest Matching
Bank interest is usually reported to the Income Tax Department. It can appear in AIS and TIS.
If the taxpayer has savings account interest, FD interest or other interest income, it should be matched before filing the return.
The discussion also points out that bank details are important. If interest is appearing from a bank account, but that bank account is not reported properly, it may create questions.
Therefore, all bank accounts and interest income should be reviewed before final filing.
Practical Impact
This issue is common in family tax planning.
Many taxpayers transfer money to spouse or child and create FDs. Later, the interest income is either not shown or shown in the spouse’s name. If clubbing applies, the correct taxpayer should include it.
For example, if a taxpayer opens an FD in wife’s name from his own funds, and interest arises on that FD, clubbing provisions may require that income to be included in the taxpayer’s return.
Similarly, if an FD is opened in a child’s name, the parent with higher income may need to report the interest.
The taxpayer should maintain records such as:
- FD receipt
- Bank interest certificate
- Source of FD investment
- TDS certificate
- AIS and TIS data
- Form 26AS
- Details of person in whose name FD is held
- Clubbing working
- Schedule SPI reporting
If the taxpayer receives a mismatch notice because interest was not reported correctly, TaxClear’s income tax notice service can help in preparing the response.
Conclusion
FD interest in the name of wife or child should not be reported casually. The taxpayer should first check whether clubbing provisions apply.
If income is taxable in the taxpayer’s hands, it should be included correctly in ITR and reported in the relevant schedule. Proper reporting helps avoid mismatch, notice and TDS credit issues.
key takeaways
- FD in spouse’s name may attract clubbing provisions.
- FD in child’s name may be taxable in parent’s hands.
- For child’s FD, parent with higher income may need to report the interest.
- Schedule SPI should be checked where clubbing applies.
- AIS, TIS and Form 26AS should be matched.
- TDS credit should be handled carefully.
- Bank interest should not be ignored.
- Income tax reporting depends on taxability, not only FD holder name.
- Proper records should be maintained.
- Wrong reporting can create mismatch and notice risk.
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