Neutral impactEconomy
Bank FD interest after a parent’s death: Who must pay tax on the income? Cases and scenarios explained
Mint 1 hr ago·11 Oct 2026, 9:21 am
When a parent passes away, their bank Fixed Deposits (FDs) are transferred to their legal heirs. The interest earned on these deposits is taxable, but the tax liability depends on when the interest was actually credited to the account. If the interest was credited before the parent's death, it is added to their total income for the year of death and taxed under their name. However, if the interest is credited after the death, it is treated as the income of the legal heir for the year it is received.
For investors, it is crucial to file the deceased parent's income tax return (ITR) if their total income exceeds the exemption limit. This ensures the tax on pre-death interest is paid correctly. Legal heirs should also report the interest earned post-death in their own ITRs. Failing to file the deceased's return can lead to notices from tax authorities. To avoid errors, keep records of the FDs and the dates of interest credit.
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