Is there any reason you should go for a joint account? Are there any advantages of Joint Bank Accounts or it only complicates your finances?
Bank accounts are something we all have and for an individual to have access to one’s own account, the account is in their names. There are however also bank accounts that are not held by single individuals but held jointly. Joint Bank Accounts are pretty common. But are they advisable? If yes, then when? If no, then why? Well, let us find out.
Joint Bank accounts simply mean that more than one person can have access to that bank account and carry out transactions related to the account, either jointly or on behalf. This arrangement is made while you open a bank account with a bank or even at a later stage you can add a name to the account and define the type of Joint Bank Account in India. There are however advantages and disadvantages of Joint Bank Accounts.
Advantages of Joint Bank Accounts:
Convenience:
Joint Bank Accounts offer convenience for the holders if the Joint account mode is ‘either or survivor’, then any one of the holders can carry out the transaction for the other. For instance, if you and your parents are Joint Holders of a bank account and for some reason there is an urgent cheque to be signed but you are out of town or at work and cannot do so, you can always get the cheque written and signed by your parent who is a joint holder and the transaction can go on. Also for making withdrawals or carrying out transactions, Joint Accounts offer convenience. In case of emergencies too, a Joint Account is handy. Situations like hospitalisation, wherein you have to write a cheque to make some payment, but you are the one admitted; a joint account holder can do so on your behalf.
Pooling of Money:
Joint Accounts can often be used as a common pool of money and since the Joint Owners have access to the account, there is accountability involved when it comes to spending that money. The joint owners can make contributions to the account and this can be a great way of saving money as well. For instance, a newly married couple can opt for a joint account, if both are working individuals and have separate salary accounts. They can have Joint Account and make monthly contribution to it, to build a kitty and start joint investments and savings.
Easy Transfer of Rights:
Perhaps the most significant and important Advantage of a Joint Bank Account, is the Transfer of Rights of the account, even if NOT MENTIONED IN A WILL. If you would want your spouse to be able to have exclusive access to your bank account after you are not around, then a joint account would do it automatically, even if you fail to make a will, or mention it in the WILL. In case of Joint Account Holders, the surviving holder automatically gets the access to the Account in case of the others death. Even if a Will mentions that the contributions to the Account be distributed to X, Y, Z; if that account is a Joint Account, then it is solely at the discretion of the Surviving Holder, if he/she/they want to distribute it or not. This is very useful if you would want to safeguard the interest of your spouse, parents, or kids. Make them a joint holder in your account.
Disadvantages of Joint Bank Accounts:
Clubbing of Income from Tax point of View:
One of the main disadvantages of a Joint Account is that there are chances of Clubbing of Income from Tax Point of view, especially in case of Spouse. For instance if you and your wife are the Joint Holders and your income is above the Taxable slab, while that of you wife falls below the taxable slab. Your wife also has an FD, the interest of which is deposited to the Joint account you both hold. Now, the income from interest will be added to the annual income of the person who is the 1st Holder, so in case the first holder is you, then even the interest income of your wife is added to your income and you have to pay tax on that, whereas actually it is your wife’s income and is below the taxable limit. However if the situation is reversed with your wife being the first holder, then the income is not added to your income and you can save some tax legally this way. So the disadvantage is turned to your advantage.
Trust matters a lot for Joint Bank Accounts:
Having Joint account can also lead to rift and trust issues between the holders. This however entirely depends on the mindset and thought process of the individuals involved in the accounts. There could be a case where in one of the joint holders misuses the funds or commits a fraud, withdraws all the money and leaves the other broke. This however depends on the kind of relationship you have with the holder. As I said above, trust matters and there are cases of couples, families and even business partners having joint accounts for decades without any trouble.
No Privacy of Finance if one wishes to:
This is one aspect that is again dependent on your equation with the joint holder. At times when both individuals having the joint account are earning, there is a tendency to have financial independence where no one asks them, why you spent so much, why was this amount withdrawn etc. This cannot exist in case of Joint Accounts. If you and your spouse are joint holders then any transaction is visible to each of you. Thus, it can lead to questions on spending habits and arguments and so on. Imagine a situation, where in you plan to surprise your spouse with an expensive gift and swipe your debit card to make the purchase. The bank statement will show it, so the surprise can be short lived. Also in case where the second holder withdraws cash or swipes the card, the SMS alert is invariably sent only to Mobile Number of the first holder; so much for surprise then!
As far as the pros and cons of Joint Bank Account in India are concerned, the Advantages are pretty significant than the Disadvantages since the disadvantages are purely based on your Trust and Relationship equation with your joint owner. If you are sure of the person with whom you intend to share your bank account with, then there is no reason you shouldn’t opt for a Joint Bank Account in India. The same principles or Joint Ownership are applicable to a lot of other Financial Products as well, like Bank FDs, Mutual Funds, Demat Accounts etc. and the advantages and disadvantages remain pretty much the same.
There are different types of Joint Accounts, which can define the role of the Joint Holders specifically and allow access to the accounts either solely or jointly or only jointly or only if one is no longer around. We shall discuss these in detail in the Next Post.
Aniket,
Insightful read and great take-home on legality in joint bank assets. I am responding to this post after years of it being published in hope of getting a resolution.
1) My mom and dad held multiple joint bank a/cs and FDs in E or S modality across banks.
2) My dad died intestate few years back. Post his death all the accounts were transferred to my mom’s name as first holder.
3) Later she added me as 2nd holder. so it became joint a/cs between me and mom. She too passed away making me sole owner.
4) There is a married sister who till date has not claimed right over the accounts.
5) The query is, after all these years can she suddenly claim right to the accounts and FDs and the interest till date to harass me.
6) As you mentioned in your post, co-holder has full legal rights after death of one holder.
Please enlighten and share any court rulings that you know of.
From a bank’s perspective if only you are added as the joint account holder then it is only your account. Legally, there may be factors like the presence of a will, what your parents wanted, etc. That is something I cannot comment on.
Thks for your valueable time and info..
SIR, I HAVE A INDIVIDUAL ONLY RENTAL INCOME (30% INCOME TAX BRACKET) ACCOUNT, PROPERTY IS IN MY NAME… CAN I INCLUDE MY WIFE (20% INCOME TAX BRACKET) AND MY SON (MAJOR, STUDENT) TO THIS ACCOUNT.. IF YES HOW CAN I SAVE TAX FOR ME, WIFE AND SON AND ITS IMPLICATIONS.. WITH EXAMPLE WILL BE HELPFUL IF POSSIBLE. THKS….
HI NCP,
You can add them to the account (I assume you mean the account in which the rental income is deposited) by making a legal document showing them to be co-owners of the property which generates rental income. However, that will not greatly help you in saving taxes, reason being, there needs to be a share of property that needs to be stated in the agreement.
Generally in case of co-owners the agreement is made at the time of purchase and the agreement can specify that person A will have X share of property and person B will have Y share. In your case you can make a legal document that states that your Wife has ‘X’ amount of share in the property and your son has ‘y’ amount of share and you have ‘z’ amount of share.
However, Husband and Wife transferring income to one another’s account will result in clubbing of income and will have NO tax benefit as such. Moreover adding anyone else to your existing account will not ensure any tax benefit since the first holder of the account will always be the one in whose name taxes will be considered.
So you can share the rental income with your son in his separate account, and this way your income reduces, and this is the possible way to reduce some amount of tax.
Thks. So, should i make a legal document which is notarized will be sufficient or the whole documentation of property khata rental agreement are to be changed. Or only rental agreement is changed showing the rental share for each person (keeping the khata in a single name).
Hi NCP,
That part you will have to clarify with a legal expert. I may not be the right person for that one.
I have a joint loan account with my wife and she is first holder. There is exemption available in Income tax for interest paid on this loan from the rental income that my wife is having. Will she be allowed to avail this exemption of interest paid in this loan account being the first holder.
Hi V Kumar,
If she is the first holder and if she is the one in whose name the loan is or if she is the first applicant in the loan too and the EMI is being deducted from her account then she can avail the exemption.
Hi,
I am an Indian Citizen but a NRI and my partner is a foreign citizen but holding a PIO Card. We are not legally married yet. Can we both open a joint NRE Account in India?
Hi!
You can open an NRO or Non Resident Ordinary Rupee account and hold it jointly with a person holding a PIO card.
However for an NRE account you need to have a atleast one joint holder who is an Indian Citizen and who is your family member or relative as per Reserve Bank of India norms
Hope it helped.
Hi,
It is a nice article written on joint account,
I am facing a problem with one of the indian bank, where my late father and I were having a fixed deposit as former or survivor, unfortunately after his demise a will was produced by a third man stating that the bank deposit is for him.
Do you have any ruling from high court or supreme court in favour of the joint account?
Thanks.
Hi Darshan!
Glad to know you liked the post.
I think a lawyer maybe in a better position to comment on the issue you are facing. To my knowledge, joint holders are natural successors to the accounts legally. So technically even if a will mentions otherwise, you should get the rights over the FD and not that third person. Still a lawyer can help out much better in this case, since what legal language is used in the will can make the difference. Hope you get what is rightfully yours.