Joint bank accounts enable the joint account holders to access and manage the account. For example for housewife opting for a joint bank account with her husband would give her the convenience of not having to wait for him to sign cheques to pay bills or withdraw money from his account. But does choosing between ‘either or survivor’ and ‘former or survivor’ options of operating the account matters?What are Rights and Responsibilities of joint holders? If wife also puts money in the account. Who will be taxed for interest on the bank account? If they make investments from the money in the account say a Fixed Deposit then the bank will deduct the tax deducted at source in the name of the primary account holder. Can she claim part of TDS? What is spouse is not working? Will the other half will handle the money in the way they want?What about Nomination? What if the latent premise of ‘mine versus yours’ surfaces? Answers to such questions for saving bank account of Indian Resident are provided in this article. In our article Joint Ownership we had looked into joint ownership of different kind of financial products such as Bank Account, Property, Add-On Credit Cards, Mutual Funds, Demat Account. This is focused on only joint bank accounts.
As the name suggests, joint bank accounts of bank are designed for use by two or more people. Joint bank accounts enable the joint account holders to access and manage the account. When you open a joint bank account, each of the joint account holders will need to sign a contract, detailing the terms and conditions of the account. The Bank will, prior to opening an account, require documentation and information as prescribed by the “Know Your Customer” (KYC) guidelines issued by RBI and or such other norms or procedures adopted by the Bank prior to opening the account. The due diligence process that the Bank would follow, will involve providing documentation verifying your identity, verifying your address, and information on your occupation or business and source of funds. As part of the due diligence process the Bank may also require an introduction from a person acceptable to the Bank if they so deem necessary and will need your recent photographs.
Saving bank account allow adding atmost two names as shown in the account opening form of Resident Individual of State Bank of India. For form you can refer SBI Account opening form (pdf) HDFC Account opening Form(pdf)
Table of Contents
An account holder is a term used for someone designated for performing transactions on an account. This term is generally used in banking, but also applies to demat, mutual fund investments. A first holder/primary account holder is the person who is listed first on the account. This person is the main user of the account and is responsible for the account. The primary account holder can add secondary account holders who also are authorized to perform transactions. Ex: Assuming you have a bank account and then once you get married you would include your spouse as a joint account holder. you will be the primary account holder and your spouse would be the secondary holder.
What secondary holder can do depends on the mode of operation of bank account. At the time of opening joint accounts instructions regarding operations and survivorship should be obtained from all the account holders and properly recorded duly authenticated by an officer as shown in image from SBI account opening form below.
Modes of Operation
When you open a bank account in only one name, then mode of operation is Single/Self i.e. only the account holder shall operate the account. In case of death of the account holder, the proceeds shall be paid to the nominee or the legal representative of the deceased person.
There are different types of joint account relationships which decide how the joint holders will operate when they are alive and what happens when they are not. These are:
- In this type of account every transaction will need the signatures of all holders. For example, Mr. A & Mr B open a joint account with mode of operation “Joint”, then both Mr. A & Mr. B would have to sign together on the cheque. If only Mr. A or Mr. B signed the cheque, the bank won’t honour the cheque.
- If any of joint account holder dies, the account can not be further operated and the proceeds shall be payable to the surviving account holder along with the nominee / legal representative of the deceased account holder.
- Under this mode of operation of a Joint account, during the life time of the joint account holders, the cheque would have to be signed by both the Joint account holders (just like a normal Joint mode of operating a bank account).
- However, in a an event whereby any of the joint holder dies, the surviving account holder can continue to operate the account as if he was the single account holder. Alternatively, the proceeds of the account can be credited to the account of the surviving account holder. For example, if Mr. A & Mr. B operate their bank account in the mode of “Joint or Survivor” and Mr. A dies, then Mr. B can individually operate the account or transfer the proceeds to his own other bank account.
- In this type of joint account either of them can operate the account. For example, if the account was opened under Either or Survivor mode, either Mr. A or Mr. B could individually operate the account as if they are the sole owner of the account.
- However, in case of death of any of the account holders, the surviving account holder can either continue to operate the account or take the proceeds into his own bank account.
- In this mode bank account can be operated by any of the account holders without requiring the other account holder(s) to sign. So this is similar to Either or Survivor.
- The difference from Either or Survivor is after any of the account holder dies, the right to operate lies with the surviving account holders but jointly. They have to decide if they would like to continue with the account as Either or Survivor or take the proceeds out of the account. In case where all but one account holder remains alive, the balance is paid to the surviving account holders.
- In this type of joint account while the primary account holder is alive, only the first account holder can operate the account.The other account holders can not operate the account.
- The other holder(s) get the right only on the death of the first after undergoing some basic formalities like submission of proof of death etc.
- This is similar to the former or survivor, but the difference is that, in this type of account, only the second account holder (latter) can operate the account.
- The survivor or the former account holder gets access to the fund only on death of the latter and on producing the proof for the same.
Other kind of joint accounts are Minor’s Account, Joint Account Holders with Special Instructions
- Minor’s Account : According to Indian Majority Act, any one who is less than 18 years of age is classified as a minor.A savings bank account can also be opened in the name of a minor jointly with a guardian. Here, only the guardian is supposed to operate the account on behalf of the minor. The guardian should be parents or in special cases, a legal guardian, as appointed by court. Some banks allow minors above the age of 12 to open and operate accounts independently.
- Joint Account Holders with Special Instructions: These types of bank accounts are more prevalent for corporate bank accounts where by the management wants to enforce internal controls based upon the materiality of the amount. In these accounts, the management specifies the limits upto which a single named account holder can sign a cheque and beyond which dual or even more than two account holders would be required to sign. For very high value transactions, it can also be mentioned that signature would be required from a specific named individual in addition to other named account holders. For example, for cheques upto Rs. 100,000 Mr. X can sign. Between Rs. 100,000 & 10,00,000 Mr. X & Mr. Y both need to sign. Any cheque beyond Rs. 10 lacs, signature of Mr. Z is required.
- Via Letter of Authority / Power of Attorney Holder: In some accounts you can authorise a third party to operate your bank account in your name. In such cases, though the third party can sign the cheques, but can not deposit any cheques of their own into your account. Simply speaking only an authority to sign cheques or perform other functions such as create demand drafts, and other banking functions can be performed by the authority holder. Such accounts are more common in case of Non Resident Bank accounts (NRE / NRO) or current accounts. All the joint account holders needs to agree before creating an authority holder to the respective bank account.
If not mentioned in a application for investments such as bank accounts, demat account, shares, bonds or mutual funds, the account may be marked as ‘joint‘ by default and you must make sure this is indeed the intention.
The Internet Banking Services will be available in case of Joint accounts only if the mode of operation is indicated as ‘either or survivor’ or ‘anyone or survivor’ or ‘former or survivor’. For ‘former or survivor’ account, Internet Banking facility may be available only to the ‘former’. For ‘either or survivor’ and ‘anyone or survivor’ accounts, Internet Banking may be provided to each one of the joint account holders on their request. In case of ‘either or survivor’ and ‘anyone or survivor’ accounts if any of the joint account holder(s) gives “stopping of operations” instructions for the use of Internet Banking Service in writing, on any of the Internet Banking Services, it will be discontinued for the User. In case of ‘former and survivor’ account, such instructions will not be issued by other account holder.
When can Joint Holders be added/deleted
Joint holders can be added while opening the bank account.
Joint holders can also be added later. To convert an existing single account into a joint or Either or Survivor(E or S) account, a letter from the existing account holder attesting the specimen signature of the new person(s) has to be obtained and attached to the Account Opening Form. All the changes have to be properly recorded duly authenticated by an authorized officer.
The Bank may at the request of all the joint account holders allow deletion of name/s of joint account holder/s if the circumstances so warrant or allow.
In case the customer having a joint account with the Bank intends to convert the same into a single account, it is desirable to close such account by getting necessary instructions from the existing account holders and then open a new account in the name of the person in whose name the account is to be continued.
Joint ownership -Rights and Responsibilites
Joint Accounts are governed Under Section 45 of Indian Contract Act.
- All operational instructions and information in connection with the relationships formed is to be given by all the joint account holders irrespective of the mode of operation.
- Any mandate / power of attorney for operating a joint account or authorizing another person on behalf of the depositors, is to be given by all account holders or with the consent of all account holders.
- Cheques and other negotiable instruments favouring/payable to one/more of the joint account holders can be credited to the joint account. However, cheques/negotiable instruments payable to the account holders jointly cannot be credited to the individual account of the bolder/s.
- If a cheque drawn by one of the joint account holders is altered, the alteration has to be confirmed by the same signatory and not the others.
- Authority to open and operate the joint account does not confer right to borrow, overdraw or discount bills of exchange by the joint account holder/s, for which there should be a special agreement between all joint account holders and the Bank respectively.
- In the event of any dispute notified to the Bank by any one of the joint account holders, the mandate will stand revoked automatically and in such cases the account should be operated jointly by all until a fresh mandate, duly signed by all joint account holders is furnished.
- Those who enter a joint account should be aware that all partners are liable for all the dealings in an account as a single or joint entity. So joint accounts should be opened only with someone you can trust.
Ref: Corporation bank’s Right and Responsibilites of Joint Account Holders, BankBazar’s How to operate a joint account ,Banyan Financial Advisors Mode of Operating Bank Account
Once you have signed a joint account contract and agreed to share an account with other people, you must bear in mind that you will each have to act responsibly and respectfully when using the account to avoid conflict with the other account holders. The banking institution which operates the account will rarely involve itself in disputes between the account holders, for example when one holder is unhappy that another has made a withdrawal, unless one account holder is evidently abusing the account.
Joint Accounts and Nomination
Joint account holders can avail the nomination facility. At present, the account holders may nominate one person as nominee. On the death of any one of the joint account holders, the surviving account holders can make a fresh nomination if no nomination has been made in respect of the deposit account. The right of the nominee in the case of joint account arises only when all the joint account holders die.In case if both the account holder and nominee is no more, the legal heirs of depositor/s will get the funds.
In the event of death of one of the joint account holder and in the absence of Nomination or repayment clause, the balance amount in the joint account will be paid to the surviving account holders along with the legal heirs of the deceased account holder. Our articlecovers how to claim money from Bank Account etc in detail.
Questions related to tax and Joint Account
- If there is a joint account between 2 persons who have no relation to each other, in whose income/balance sheet does it have to be taxed/shown? Usually its a practice to show it in the name of the person who is the primary holder of the account or whose name appears first. But is there any chance we can show it in another person’s name? Can we by any chance divide everything into 2 and show it? Is the situation any different if both of the joint account holders are related to each other? What if they’re husband & wife? (Ref : CAClubIndia Joint Bank Account Taxibility Query)
- My father has opened a joint account in bank with my sister who is married. Now every year in april my father deposits Rs 40000 in account. And in march month my sister withdarw rs 30000. Now, plzz guide me
- Is that amount Rs 30000 will be treated as gift from father to sister in that particular year….or it is an asset of sister “Cash in bank” in her books
- Is the amount withdrawn by sister taxable in her hands in that year.
- if for 5 years my father deposits rs 40000 every year in joint bank account. and my sister withdraw Rs 100000 from account in the 6th year. is that amount taxable in her hands or it would be regarded as her asset and exempted in her hands. (Ref:CAClubIndia Tax treatment of joint account money withdrawn)
In terms of attracting a tax liability, opening a joint account with relatives, especially those with no independent income, poses the least risk. Withdrawals up to any amount, by the relative in effect, would be considered as a gift to the relative according to the Income Tax (I-T) Act. Since gift to relatives is tax-free, there would be no income tax on the recipient.
Even for joint holdings between non-relatives, there would be no tax applicable on withdrawals of up to Rs 50,000 under Section 56 of the I-T Act. However, anything above this will be taxed in the hands of the recipient.
However, if the money is withdrawn and invested by the joint account holder who is a spouse and is not working, the clubbing provision would apply. Any income that has been generated by such an investment made by the spouse would have to be included in the income of the primary holder. He/she would pay taxes as applicable under the tax slab he/she falls. Discussed more in our article BemoneyAware Clubbing Income
Income tax officials look at the source of the funds for determining taxes and so, as long as the person can explain his/her part of the income, he/she would have to pay taxes on that part only.
Answer the question about joint account of father-sister question : Any withdrawal from the bank is neither taxable in the hands of father nor in the hands of sister. Any interest income shall be taxable in the hands of that person who is the first holder. CLubbing provisions not applicable since i assume ur sister is major. But withdrawal shall be taxable if deduction u/s 80C is claimed. (Ref:CAClubIndia Tax treatment of joint account money withdrawn)
If both individuals are liable to pay taxes on their individual incomes, they should opt for opening two separate joint accounts and, thereby, maintaining clarity in their sources of funds. So, for instance, the husband could be the primary account holder in one and his wife could be the second holder. It could be vice versa in another account.
Having a joint account makes sense: they are super-efficient, streamline expenses. if married, both partners have a 100% stake in everything each owns. But there is queasy feeling when it comes to pooling resources. And in a relationship, monetary transactions go beyond give and take especially if both are earning a living. Money also reflects the balance of power between partners. People tend to be emotional and reactive about money, not strategic. Let’s admit it, we love our money more than we think. Counsellors say control over finances is perhaps the most important tool to assert individualism. So when a squabbling couple comes for help, no matter the problem, they probe the money arrangement between the two. It rips open the relationship, warts and all.
Relationship comprises two independent individuals. They come from different background and their approach to money is poles apart. She doesn’t spend and I like to live large. Or he’ll spend my money on funky gadgets that he’ll rarely use or are his cigars a household expense like my cheese?You’re a risk-taker, I’m risk-averse. Joint account also raises the question : who puts in how much money? Should contributions be in the ratio of incomes? So do modern-day urban couples prefer to split responsibilities than pool in the money they earn? He pays the EMIs and she looks after household expenses. School fees are on his task-list, children’s clothes on hers. Or do they take middle path: a joint account as the symbol of togetherness (route EMIs, rents and daily expenses through them,) and separate accounts for freedom and the sense of control.
More on it at KeyBank’s The Six Financial Mistakes Couples Make, Parenting’s Arguing over money? 6 tips to get along, Nest’s Should You Have Joint or Separate Accounts?
Having a joint bank account affords much in terms of convenience. Those who enter a joint account should be aware that all partners are liable for all the dealings in an account as a single or joint entity. So joint accounts should be opened only with someone you can trust. And generally it is safer to keep finances separate as individual accounts clearly establish ownership of funds. If both individuals are liable to pay taxes on their individual incomes, they should opt for opening two separate joint accounts and, thereby, maintaining clarity in their sources of funds. So, for instance, the husband could be the primary account holder in one and his wife could be the second holder. It could be vice versa in another account.