My mother has passed away and she has a fixed deposit. We are in trouble and sister as his legal heir. All the FDs were in my mother’s name and I am the nominee. My mother has not made any will. I want to transfer FD to my sister for her child’s education. I checked with the banks where these FDs are booked and they said, we can just close these FDs and transfer money to my account, as I am the nominee. I can transfer money to my sister, if I want to do so.
I have a questions:-
1) Will I get any notice or pay any tax once it is credited to my account?
2) How will my sister show it for ITR purpose, once I get the amount credited in my account, I will transfer these FDs to her account.
My mother was a tax payer and so am I. My sister is a housewife and does not file ITR. However, she has a PAN card, and will now file ITR, as she will reinvest these FDs and earn interest income.
The role of the nominee is that of the trustee of the legal heirs of the deceased and not as the owner of the property received as a nominee. Yes, banks are right in their stand that money can be deposited in your bank account only as you are enrolled and depositing money in your account frees the bank from its liability. Since both you and your sister are legal heirs and strictly speaking, both of you are entitled to equal share in the property of your late mother. However, the legal heirs among themselves may agree to an unequal share or may agree to a single heir to inherit all the assets to the exclusion of other legal heirs.
So you can either give the entire money to your sister as an inheritance or you can first share it equally between the two of you and then gift your sister your share in the bank deposit. Since there is no inheritance Tax In India, the inheritance received by both of you should not be treated as your income. If you gift your share of bank deposit to your sister then it will also not be treated as her income as gift received from specified relative including siblings should not be treated as income.
Whether you inherit the entire bank fixed deposit income to your sister or inherit half of it and give half as a gift to your sister, both the transactions will not have any tax implications for you or your sister .
Since inheritance as well as gifts from specified relatives are not treated as income, your sister need not disclose the same in her ITR. If she wants, she can show the money in Schedule EI (Exempt Income) of ITR.
Balwant Jain is a tax and investment specialist and can be contacted on Twitter at jainbalwant@gmail.com and @jainbalwant.