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Business News/ Money / Personal Finance/  If a senior citizen makes FD in name of his son, who will pay tax on interest?
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If a senior citizen makes FD in name of his son, who will pay tax on interest?

Please note that just by gifting the money to your son, which is exempt in his hand, you will lose your right over your money.

Please note that just by gifting the money to your son, which is exempt in his hand, you will lose your right over your money. (iStock)Premium
Please note that just by gifting the money to your son, which is exempt in his hand, you will lose your right over your money. (iStock)

I am a senior citizen. If I make a fixed deposit in the name of my adult son, who will be liable to pay tax on the interest from the FD?

The transaction can either be treated as gift or a loan. In case you give this money as gift to him, there will not be any tax implications for you as gift received from specified relatives including parent are tax free in the hands of the recipient. The clubbing provisions will also not apply as your son is adult. 

Alternatively, you can advance this money as loan to your son which then can be invested by him in FD and which shall be taxable in his hand. The loan can be interest free or interest bearing loan. Please note that in case you give an interest free loan and are already paying any interest on the money borrowed, advancing of interest free loan will not work as the assessing office may disallow your claim for proportionate interest paid relatable to the interest free loan. 

Please note that just by gifting the money to your son, which is exempt in his hand, you will lose your right over your money.

In case you do not intend to treat this transaction as gift or a loan, the income tax officer may club the interest income applying the provisions of Section 60 which covers the cases of transfer of income without transfer of the underlying asset. 

Balwant Jain is a tax and investment expert and can be reached on jainabalwant@ gmail.com and @jainbalwant on Twitter

 

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Published: 13 Feb 2022, 11:44 AM IST
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