A reader says, “I read your blog on financial planning where you mentioned that it’s better to invest in mutual funds through a joint account as the transfer of units is easier than via nomination. But there is a lot of confusion regarding its taxation”.
“I read about a couple online who handle their mutual funds and FD in their joint account. The wife doesn’t work, but she still got a notice from the income tax department for the same amount her husband has already paid in taxes. Please try to cover this topic in your future blogs if possible. I tried to talk with some of my CA friends, but they didn’t know as well. I have also opened a joint account and am confused”.
The rule on joint MF accounts is quite simple. The tax has to be paid by the first holder. However, the sale of MF units will be reported in the form 26AS of both holders but will only be (should only be) reflected in the tax credit report of the first holder.
Unfortunately, notices can be set to the second unit holder. The only solution I can think of is for the second holder to dispute duplicate transactions in form 26AS promptly.
One could still get a notice. The best way to tackle it is to ensure the income invested is that of the first unit holder. In particular, avoid income clubbing complications (investing in the name of the spouse who does not have an income).
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If these complications scare you, then use nomination instead of second-owner ship. However, existing second holders need not worry. With some prompt vigil, they can avoid these difficulties.