In India, Fixed Deposit (FD) is considered one of the safest and most reliable investment options. Millions of people put their hard-earned money into FDs every year to enjoy guaranteed returns and capital protection. Nowadays, instead of opening FDs in a single name, many people prefer Joint FDs with their spouse or family members.
Having a joint FD gives a sense of security as the account includes more than one name, and it also assures families that their savings are well-protected. But here’s the twist—did you know that a joint FD with your wife can sometimes invite the attention of the Income Tax Department and even result in a tax notice being sent to your home?
This article explains in detail how taxation works on FDs, why joint FDs can trigger notices, what mistakes people commonly make, and how you can safeguard yourself while enjoying the benefits of FDs.
FD Interest Is Always Taxable
One of the biggest misconceptions among investors is that FD interest is like “savings” and not taxable. The truth is, interest earned from FDs is fully taxable and is treated as part of your income.
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If your annual interest income from FDs exceeds ₹40,000, the bank will deduct TDS (Tax Deducted at Source).
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For senior citizens, this limit is ₹50,000.
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Regardless of whether TDS is deducted or not, you are required to show this interest in your Income Tax Return (ITR) under “Income from Other Sources.”
Joint FD and Tax Rules: Burden Does Not Split
Here comes the most important part—what happens if the FD is in joint names? Does the tax liability get divided between both account holders?
The answer is No.
The Income Tax Department always checks who invested the money in the FD. The person contributing the funds is liable to pay the tax, regardless of whether the FD is joint or not.
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If the husband invests and makes his wife the second holder, the tax liability stays with the husband.
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If the wife invests and makes the husband a co-holder, the tax liability is hers.
So, even if both names appear on the FD receipt, the tax burden rests entirely on the primary contributor (First Holder/Investor).
Why Can a Tax Notice Be Issued?
The Income Tax Department issues notices when it finds inconsistencies in financial records. With joint FDs, a notice may arrive if certain mistakes or misrepresentations are found.
1. Benami Transaction Risk
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If the money belongs to the husband but the FD is made in the wife’s name, the tax department may treat it as a benami transaction.
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This means you are showing assets in someone else’s name, which can attract scrutiny, penalties, or even legal consequences.
2. Wrongly Submitting Form 15G/15H
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Many people submit Form 15G or 15H to prevent the bank from deducting TDS.
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However, these forms are only valid if your total income is below the taxable limit.
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Submitting them without eligibility is considered tax evasion and may lead to a notice.
3. Not Reporting FD Interest in ITR
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Some taxpayers forget or deliberately avoid showing FD interest in their ITR.
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But banks already report TDS details to the IT department, so discrepancies are easily detected.
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Failure to report interest income often results in a notice.
Clubbing of Income Rule
Under the Clubbing of Income provisions of the Income Tax Act:
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If the husband invests in an FD but makes his wife the co-holder, the interest will still be added to the husband’s taxable income.
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If the wife is a homemaker with no independent income, the tax will still fall on the husband.
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Similarly, if parents open an FD in the name of a minor child, the income is clubbed with that of the parent earning a higher income.
This rule ensures that taxpayers cannot avoid taxes simply by putting money in another family member’s name.
Example: How Tax Is Calculated
Let’s understand with a simple example:
Rajesh invests ₹10 lakhs in a joint FD with his wife Sunita.
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The FD earns them interest of ₹70,000 per year.
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Since the funds belong to Rajesh, this ₹70,000 is considered Rajesh’s income.
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If Rajesh falls in the 30% tax bracket, he must pay around ₹21,000 as tax on the interest.
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Even though Sunita’s name is also on the FD, the tax liability remains solely with Rajesh.
How to Avoid Income Tax Notices on Joint FDs
If you follow the rules carefully, you can enjoy the benefits of joint FDs without worrying about notices. Here are some precautions:
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Clarify the Source of Funds
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Ensure it is clear who is contributing the money.
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Make the Contributor the First Holder
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The person who invests should be the primary holder of the FD.
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Always Report FD Interest in ITR
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Disclose the interest income under “Income from Other Sources.”
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Use Form 15G/15H Correctly
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Submit only if your income is genuinely below the taxable limit.
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Maintain Proper Documentation
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Keep FD receipts, bank statements, and proof of investment handy for verification.
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Special Relief for Senior Citizens
Senior citizens enjoy certain benefits under tax rules:
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Interest income up to ₹50,000 is exempt from TDS.
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Under Section 80TTB, they can claim deductions up to ₹50,000 on interest income from savings accounts, FDs, and recurring deposits.
Why Professional Guidance Matters
Tax laws can often be tricky, and small mistakes may cost you big. That’s why:
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Consulting a Chartered Accountant (CA) or tax advisor before making joint FDs is advisable.
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For high-value investments, professional tax planning becomes even more important.
Conclusion
Joint FDs are a secure and popular investment choice, especially for families. However, tax rules must be followed carefully.
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FD interest is always taxable.
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Joint FDs do not split tax liability—it stays with the actual contributor.
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Wrong use of forms, hiding interest income, or creating benami FDs may invite tax notices and penalties.
The best way to enjoy the safety of FDs without tax troubles is to invest transparently, report income honestly, and seek professional guidance whenever needed.
By doing so, you can ensure that your hard-earned savings grow safely—without the fear of an income tax notice knocking on your door.
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