Fixed Deposit: are a popular investment choice in India, offering safe and guaranteed returns. However, many people overlook the impact of whose name the FD is registered under, which can influence tax benefits and financial advantages. In many cases, opening an FD in your mother’s name may be more beneficial than in your wife’s name. Here’s why.
Key Advantages of Opening an FD in Your Mother’s Name
1. Greater Tax Savings
If you gift money to your mother and she invests it in an FD, the interest earned is considered her income and will be taxed according to her income slab. Many senior citizens fall into a lower tax bracket or even below the taxable income limit (₹3 lakh for senior citizens, ₹5 lakh for super senior citizens). As a result, the interest income may be tax-free.
However, if you open an FD in your wife’s name, the interest income will be clubbed with your income under the Income Tax Act’s clubbing provisions, potentially increasing your overall tax liability.
2. Higher Interest Rates for Senior Citizens
Most banks offer senior citizens an additional 0.5% interest rate on FDs. If your mother is above 60 years old, she will earn a higher interest rate than your wife would.
3. Exemption from TDS (Tax Deducted at Source)
If the interest earned on an FD exceeds ₹40,000 annually (or ₹50,000 for senior citizens), banks deduct TDS unless the account holder qualifies for an exemption.
- If your mother’s total income is below the taxable limit, she can submit Form 15H to avoid TDS deductions.
- Your wife, however, might not qualify for this exemption if she has other income sources.
4. No Clubbing of Income
If you gift money to your mother, the interest income will not be clubbed with your taxable income. However, if you give money to your wife, the interest earned from the FD will be added to your income and taxed accordingly.
When Is an FD in Your Wife’s Name a Better Option?
In some cases, an FD in your wife’s name could be beneficial:
- If your wife has no other income and her total income remains below ₹2.5 lakh, the interest earned will be tax-free.
- If your wife is a senior citizen, she can also benefit from TDS exemption and higher FD interest rates.
- If you want joint control over the money, opening the FD with your wife could be a better choice.
How to Open an FD in Your Mother’s Name
- Gift Money to Your Mother: Transfer money legally to her account via bank transfer or cheque.
- FD Investment: Your mother should open the FD in her name with the gifted amount.
- Submit Form 15H (if applicable): If her total income is below ₹3 lakh, she should submit Form 15H to avoid TDS deductions.
- Compare Interest Rates: Check multiple banks and NBFCs to find the best FD interest rates.
Frequently Asked Questions (FAQs)
1. If I open an FD in my mother’s name, do I still own the money?
No. Once you transfer the money to your mother, it legally becomes her property. You cannot claim or control it unless she voluntarily returns it.
2. Will my mother have to pay taxes on FD interest?
Yes, if her total annual income exceeds the taxable limit (₹3 lakh for senior citizens, ₹5 lakh for super senior citizens). Otherwise, she can avoid taxes entirely.
3. Can my mother gift the money back to me later?
Yes, your mother can return the money as a gift, and there are no tax implications. However, if she earns interest on the FD and then gifts that interest amount to you, you may have to pay tax on it.
4. Can my mother and I open a joint FD?
Yes, but the tax slab of the primary account holder will apply. If your mother is the primary holder, she will pay tax on the interest instead of you.
5. Are there any risks in opening an FD in my mother’s name?
The only risk is that legally, she owns the money. If there are family disputes or if she decides to use the money differently, you cannot legally claim it back.
Final Thoughts
If your primary goal is saving taxes and earning a higher interest rate, opening an FD in your mother’s name (especially if she is a senior citizen) can be a smart financial decision. However, it’s essential to discuss this arrangement with her, ensure she is comfortable with it, and remember that once transferred, the money legally belongs to her.
For the best financial strategy based on your unique situation, always consult a tax professional.
