Bank FD interest after a parent’s death: Who must pay tax on the income? Cases and scenarios explained

Who pays tax on bank FD interest after a parent’s death? Understand income tax rules for inherited fixed deposits, interest earned before and after death, legal heirs’ responsibilities and filing the deceased parent’s income tax return to avoid reporting errors.

When an individual loses their parent, it is one of the most difficult periods of their lives. Still, it is important to note that such a challenging situation comes with not only the emotional and psychological stress but also with several inherent financial obligations and responsibilities. One such responsibility is to be amicable, manage the finances of the deceased parent, and ensure meaningful tax compliance.

This is because when a parent dies, fixed deposits (FDs) held in their name can leave family members with significant questions about inheritance, interest income, and tax liability. Now, it is a given that inherited money is generally not taxable; however, the interest earned on the deposit may be subject to income tax.

Furthermore, who should be held responsible for reporting it depends entirely on when the interest accrues and who becomes legally entitled to the fixed deposit. This write-up is dedicated to discussing the fundamentals of the same.