FD In Spouse’s Name: Who can claim the tax credit?

MANY COUPLES OPEN fixed deposits (FDs) in the spouse’s name hoping to reduce tax liability. But when the bank deducts Tax Deducted at Source (TDS) on inter­est income, a critical question arises: who can claim TDS credit?

If the FD is in your spouse’s name but the money was transferred from your account (without consideration), the interest income is clubbed with your income under Section 64(1)(iv) of the Income Tax Act. In this case, you—the transferor—can claim the TDS credit, not your spouse.

The law treats this as a transfer of assets, not income. When you gift money to your spouse and then invest it in an FD, the resulting interest remains taxable in your hands. The Income Tax Appellate Tribunal has confirmed that the husband is the “deemed owner” and entitled to TDS credit on interest from money gifted to his wife.

Since TDS is deducted in your spouse’s name (her PAN), you must follow a specific procedure: your spouse files a declaration with the bank under the proviso to Rule 37BA(2), providing your PAN, name, address, and stating that income is clubbed with yours; the bank issues the TDS certificate (Form 16A) in your name; you claim the credit while filing your income-tax return; and, your spouse files her return indicating “deducted in own hands, claim in hand of spouse.”

If the FD was funded by your spouse’s own income (not trans­ferred from you), the interest is not clubbed. In this case, your spouse claims the TDS credit independently.

The TDS credit follows the tax liability, not the account name. If income is clubbed with yours due to a fund transfer, you claim the credit—but only after your spouse files the required declaration with the bank.