Dear Rupee Rani,
I remember reading your column about special bank accounts that cater to women offered by some banks and had a few questions about it. Due to a few circumstances, my mum has lost control and rights over assets that were controlled by my father and is trying to take measures to give herself financial independence if things get worse. I'm trying to help her out and wanted to understand if opening this kind of a bank account for her savings can be done in secret and what impact that would have on taxes (which so far has all been managed by my father through the joint assets for our family business). It would really mean a lot if you could help me out here or alternatively direct me to a source that can.
I received this email a few days ago and could not stop thinking about it. Hence, I thought I’d answer it publicly, as opposed to sending the writer a reply since I felt many more people could benefit from it.
This situation is unfortunately, not unique. Thousands of women who were made to dedicate their lives to the household, often find themselves penniless in their later years because their husbands willed it so. While it is great that you want to help, the ‘secret’ part can get tricky. Here’s why.
What is a secret bank account?
A secret bank account is simply a regular bank account that people in your family aren’t aware of. You can open a bank account in any bank in your name with the required proofs of identification and the initial cash deposit. There will be no messages sent to anybody else or announcements made when you open a bank account. However, for the sake of ensuring that it remains private, the account is best opened in a bank that is some distance away from the bank that your father or family frequents. Most bank forms have a ‘permanent’ address, which should match with the proof of identity and an ‘address for communication’. Make sure the address for communication is your address (I am assuming it is different from your parents’) or a well-wisher’s. Mail from the bank breaks your secret out in the open. This apart, opening a bank account isn’t difficult at all. The complications arise only on taxation.
The impact on taxes
Here’s where it can get complicated. The Income Tax Act and Rules require you to state every bank account that is held in your name. Even if you open a joint account for her (where you are the first holder), she will have to disclose that she is holding the account with you in her return. You have written that the tax returns are filed by your father. Is he filing for her as well? If he is, then I am afraid the tax man might come knocking on your doors with a notice that states that there’s a bank account with her PAN that is not showing up on his records. I cannot comment further because I am unaware of the specifics of your family business and the answer can change depending on whether it is a partnership firm/an HUF/a company. It can also change depending on the kind of ownership that your mother has on the family assets.
So how can you help your mother?
The only way out, at least the only one that I can see, is if you take one for the team. Open an additional account in your name, make her the nominee and give her the debit card and net-banking credentials to transact with. Any cash that she deposits in this account will have to be disclosed as your income, along with the savings bank interest or fixed deposit interest that is earned there. In the meanwhile, I would also recommend you discretely visit local legal and accounting professionals that you know and trust with all the details, so they can help you better.