Income Tax: When an individual holding bank fixed deposits passes away without a will, as in the case of a depositor who passed away in July 2024, the process of distributing the fixed deposit proceeds and managing the tax liabilities can become complex. In such cases, while the nominee listed for the deposits can claim the funds, they do not automatically become the owner of the entire amount. Instead, they hold the money in trust for all legal heirs under the provisions of the Hindu Succession Act of 1956.
Understanding tax implications and nominee rights after inheriting Fixed Deposits
Even though the bank will release the fixed deposit funds to the nominee, it is important to understand that all assets, including fixed deposits, are inherited by the legal heirs, and the interest portion is taxable in their respective hands from the date of the depositor’s death. The nominee must inform the bank about the death to claim the funds, as they cannot continue the fixed deposit in the deceased’s name.
Tax and TDS Considerations
In cases where the deceased had submitted Form 15H to avoid TDS due to no tax liability, the situation changes after their death. Since the nominee cannot submit Form 15H on behalf of the deceased, banks will deduct TDS on interest credited from the fixed deposit. Claiming a refund for the deducted TDS in the name of the deceased is not feasible. Therefore, it is in the best interest of the nominee to inform the bank immediately and facilitate the distribution of funds among all legal heirs.
Nominee Responsibilities and Legal Heir Rights
It is crucial for the nominee to act promptly, ensuring that the fixed deposit proceeds are properly distributed among the legal heirs to avoid complications with taxes and bank processes. Although the nominee receives the money, it is considered part of the deceased’s estate, and the rightful ownership must be shared according to the legal heirs’ entitlements.
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