FD Ownership Dilemma: Should you book fixed deposit in your name or your wife’s?

Financial decision-making can often be perplexing. A common area of confusion arises for married couples when considering the opening of a fixed deposit account, specifically regarding whether to open the account in the husband’s name or the wife’s name. This choice can present both straightforward and complex challenges. The implications of this decision extend to financial and tax considerations, as it can greatly influence the returns generated.

When setting up a fixed deposit, individuals have the option to select either single or joint ownership. However, the decision regarding whose name should be associated with the fixed deposit becomes particularly significant when considering aspects such as taxation, income planning, and financial objectives. It is essential to examine various factors that can assist you in making this decision and clarifying any uncertainties.

Tax Implications of Holding an FD

The interest income earned from a fixed deposit is taxable under the head ‘Income from Other Sources’. If you open an FD in your name, the interest income will be added to your total income for the financial year and taxed as per your applicable tax slab. If your wife is in a lower tax bracket, it may seem tempting to open the FD in her name to reduce the overall tax liability.

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Tax Deducted at Source (TDS)

Banks deduct TDS at 10% on FD interest if it exceeds Rs 40,000 (Rs 50,000 for senior citizens) in a financial year. However, if your spouse’s income is below the taxable limit, they can submit Form 15G or Form 15H (for senior citizens) to avoid TDS.

Key Factors to Consider

* Tax Bracket of Both Spouses

The primary factor should be the income tax bracket of both you and your wife. If your spouse is in a lower tax bracket or does not have any taxable income, holding the FD in his or her name might be beneficial from a taxation standpoint.

* Senior Citizen Benefits

All banks and financial institutions offer higher interest rates on FDs for senior citizens. Adhil Shetty, CEO of Bankbazaar.com, says, “Senior citizens enjoy higher interest rates on fixed deposits, by about 0.25% to 0.50%. If your spouse qualifies as a senior citizen and you don’t, it makes sense to open the FD in their name to benefit from these higher interest rates.”

* Joint FDs Make Sense

Opening a joint FD can be a good option when both spouses are involved in the financial decision-making process. This ensures that both parties can access the funds easily, especially in cases where one partner is unable to manage the investment due to unforeseen circumstances. However, in joint FDs, the interest income is usually taxable in the hands of the first holder, as per the bank’s records.

The data table compares the interest rates offered by some banks on their FDs.