1059. Instructions for deduction of tax at source from interest on deposits in joint names

1. Sub-section (1) of section 194A requires any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of interest other than “Interest on securities”, to deduct income-tax at the prescribed rate thereon, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier.

2. Certain doubts have been raised about the manner of deducting tax at source from interest income on deposits in joint names. They are :

(1) In respect of deposit(s) in joint names, if there are also deposits in individual names with the same person responsible for deducting tax, should the interest on deposit(s) in joint names be aggregated with the interest on deposits in individual names or not ? In other words, if there is a deposit in the joint names of X and Y and/or also deposits in the individual names of X and/or Y, should the interest be aggregated in the joint names of X and Y with the interest income on deposits in individual names of X and/or Y. This question becomes particularly relevant for the purpose of determining the limit of Rs. 1,000 up to which the interest income in a financial year does not require any deduc­tion of tax at source.

(2) If the interest on a joint account has to be aggregated with the interest income on deposit in individual names should it be aggregated with the first name or the second name or either ?

(3) In what manner should the certificate under section 203 of the Act be issued ?

(4) Who will claim the credit for the tax deducted at source under section 199 ?

3. The Board are advised that in the case of a deposit in joint names, say in two names, in the absence of any proof to the contrary, both the persons can be treated as payees for the purpose of deduction of tax under section 194A. As such, unless the person paying the interest on such deposit(s) has definite information about the beneficial ownership of the deposit(s), the interest payable under a joint account can be aggregated with the amount of interest payable by that person to any one of the payees in their separate or independent accounts. The persons responsible for deducting the tax are advised that, in the ab­sence of any information to the contrary, they may aggregate the interest on a joint account with the interest on deposit in the individual’s account who has higher interest income. Thus, if there is a deposit of Rs. 5,000 in a joint account of XY and there are deposit of Rs. 4,000 in the name of X and Rs. 3,000 in the name of Y with the same payer, the rate of interest being 12 per cent per annum, the payer may aggregate the interest in the joint account amounting to Rs. 600 with the interest of Rs. 480 on the deposit of X and since the aggregate interest during a financial year exceeds Rs. 1,000 he may deduct the tax at the prescribed rate. The fact that the joint account may be styled as YX instead of XY will not make any difference.

4. The certificate of deduction of tax at source under section 203 will be given to the person in whose name the interest on joint account has been aggregated and a suitable mention of the existence of the joint account and the amount of the deposit will be made in the said certificate.

5. Credit for the payment of tax deducted at source under section 199 will be given to the person in whose name the certificate under section 203 has been issued.

6. If any objection is taken to the deduction of tax at source in the above manner or it is contended that the joint account holders constitute a separate person and no deduction of tax at source should be made, it will be up to them to point it out to the person paying the interest by leading evidence, i.e., by filing affidavits or statements in the manner laid down in the proviso to sub-section (1) of section 194A. The person paying the interest may act according to the affidavits or statements which the joint account holders may like before him in discharging his responsibilities under section 194A.

7. It may be clarified that the manner of deduction of tax at source is without prejudice to the powers of the Income-tax Officer to determine the beneficial owner of the deposit in the joint names and to tax the interest income accordingly at the time of assessment.

Circular: No. 256 [F. No. 275/17/79-IT(B)], dated 29-5-1979

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