Income tax implications for inheriting fixed deposits ( FDs) after father’s death

My father had a few bank-fixed deposits and passed away in July 2024. He did not write any will. I am the nominee for all the fixed deposits he holds. Since my father had no tax liability, he used to give Form 15H, so no TDS has been deducted in the past. I want to know how the interest portion would be taxed. It is a 10-year FD with cumulative interest option. If I continue the deposit in my father’s name, which I would like, how would the interest portion be taxed? The deposit is in the sole name of my father, and being a single nominee, I would receive the proceeds upon maturity. What will be the tax liability at the time of receipt of maturity proceeds? How can I ensure that TDS is not deducted, or can I claim a refund of TDS as my father has expired, and there is no point in getting tax deducted in his name? Can I show the interest proceeds in my HUF account?

Since you have a HUF, it is logical that you are a Hindu under the extended definition of Hindu under the Hindu Succession Act of 1956. Since your father did not write any will, all his assets were immediately passed on to his legal heirs as per the provisions of the Hindu Succession Act. So, all the assets, including the fixed deposits in question, are inherited by his legal heirs.

Fixed Deposit Nominee Alert: Immediate Steps for Tax and Legal Heir Distribution

Though the bank may pay the fixed deposit amount to you as a nominee, you do not become the owner of the money and hold it under trust for all the legal heirs entitled to their share in the money.

Since your father died intestate, i.e. without leaving a Will, all the assets have devolved on the legal heirs and the proportionate interest immediately after your father's death. So interest income becomes taxable in their respective hands. Please inform the bank about the death of your father so that you can claim the money of the fixed deposit by you being a nominee. You cannot continue the fixed deposit in his name after his death. Since you will not be able to submit form 15H in respect of the fixed deposit held in your father’s name for the current year, the bank will deduct tax on the interest credited on it and claiming a refund of the same poses another problem, so it is in your interest to intimate the bank immediately about the death of your father and get the money distributed amongst legal heirs.

Any asset received as an inheritance is not treated as the recipient's income and must not be disclosed in the ITR. You cannot take the money in your HUF. Had your father executed a will bequeathing the amount of fixed deposit partly or fully to your HUF, the money could have been taken in your HUF.

I presume that the accrued interest in the fixed deposit has been offered for tax year after year. If it were not provided for tax in the past on an accrual basis, the interest accrued till your father's death would be taxed in his hands and interest for the period after his death would be taxed in the hands of respective legal heirs.

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Balwant Jain is a tax and investment expert and can be reached at jainbalwant@gmail.com and @jainbalwant, his X handle.

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