Joint FD with family? Here's why it could mean a tax notice for you too

Tax experts warn that Rule 114E (2) duplicates high-value deposits in AIS, leaving secondary joint holders like homemakers and seniors vulnerable to mismatch notices

For many Indians, holding a joint bank account with a spouse, child, or parent is simply a matter of convenience, be it for succession planning, ease of access, or managing household finances. But tax experts warn that such arrangements can come with an unintended complication, duplicate reporting of high-value transactions in the Income Tax Department’s systems, often leading to mismatch notices.

 

Why the problem arises

At the heart of this issue is Rule 114E (2) of the Income Tax Rules, which requires banks, NBFCs, mutual funds, and other reporting entities to file a Statement of Financial Transactions (SFT) for specified high-value activities.

 

These include deposits or withdrawals above Rs 10 lakh in savings accounts, fixed deposits of over Rs 10 lakh, large credit card payments, and mutual fund purchases beyond Rs 2 lakh.

 

“The rule mandates reporting of the PAN of all joint holders. As a result, the entire value of the transaction gets reflected in the AIS and TIS of every holder, regardless of who actually contributed the funds,” explained Suresh Surana, charted accountant. This duplication, he said, often creates mismatches between returns filed and the information available with the department, triggering automated compliance notices.

 

Real-world impact

The consequences are particularly harsh for non-earning joint holders.

 

Niyati Shah, charted accountant & vertical head of personal tax at 1 Finance cited a case of a 61-year-old homemaker, who was flagged for a Rs 20 lakh deposit actually made by her salaried daughter. “Despite having no income, Anita received a high-value compliance notice. Such situations are now increasingly common among homemakers and senior citizens,” Shah said.

 

Ritika Nayyar, partner at Singhania & Co, recalled a similar instance where a mother with no taxable income was sent a notice after her daughter’s Rs 15 lakh deposit was tagged under both their PANs. “The burden of explanation falls on the innocent co-holder,” she observed.

 

What taxpayers can do

To minimise risk, experts suggest:

 

Check AIS/TIS carefully before filing ITR.

 

Use the AIS feedback option to mark entries as “belongs to another PAN” or “duplicate.”

 

Keep supporting documents such as bank statements or gift deeds to clarify ownership.

 

Respond promptly to notices via the Compliance Portal with details of the actual contributor.

 

Sonu Jain, charted accountant & chief risk and compliance officer of 9Point Capital noted, “Only the real contributor should report income. CBDT must refine reporting norms so non-earning joint holders are not burdened with unnecessary scrutiny.”

 

The way forward

 

Experts agree that the rule’s intent, to track high-value financial transactions is sound, but its execution needs refinement. Until the Central Board of Direct Taxes issues clarifications or modifies AIS design, joint account holders, especially homemakers and retirees, remain vulnerable to avoidable tax notices.