Operations in Deceased Accounts, GST Fundamentals & TDS Provisions: Complete

Operations in deceased accounts are one of the most sensitive duties a banker performs. The moment a bank learns that a customer has died. The rules change instantly.

Cheques stop. Mandates lapse. Liability questions appear.

For JAIIB. CAIIB and IIBF aspirants. This single topic - bundled with GST fundamentals.

TDS provisions - delivers steady. Repeat marks every cycle.

This 2026 guide explains the logic, not just the rules. You will learn why a bank freezes an account. How joint accounts behave differently. And how GST and TDS get tested in banking promotion exams. Read it once, and these questions become free marks.

Why Operations in Deceased Accounts Matter So Much

A bank account is built on a live contract between the bank. The customer. That contract is personal. When the customer dies, the contract cannot continue in the same form.

This is not just legal theory. A wrong debit after death can expose the bank to a claim from the legal heirs. So banks act with caution. And exams test whether you understand this caution.

The same paper often mixes in GST fundamentals and TDS provisions. Examiners club these because all three touch daily branch compliance. Mastering them together is efficient and high-yield.

Operations in Deceased Accounts - Why Banks Act the Way They Do

When an individual account holder dies, the banker-customer relationship terminates. Once the bank receives confirmed information of the death. It loses the authority to debit the account.

The practical consequences are immediate and strict:

• All operations on the account are stopped at once.
• Cheques presented after death are not payable - even if the customer issued them before dying.
• The balance becomes payable only to the nominee. Or, if there is no nomination, to the legal heirs.

Here is the point students miss most. A nominee is only a trustee. The nominee receives the money to hold.

Pass on - they do not become the legal owner. Legal ownership is decided by succession law. A will, or a succession certificate.

Joint Accounts - One Rule Does Not Fit All

Joint accounts are a favourite exam trap. The treatment on death depends entirely on the mode of operation. Read the mandate before you act.

Jointly Operated Accounts

In a "jointly operated" account, all holders must sign for any transaction. On the death of one holder:

• Operations are stopped.
• Payment is made jointly to the surviving holder(s). The legal heirs of the deceased.

The nominee becomes relevant only when all account holders die. Until then, the survivors and heirs decide together.

Either or Survivor / Former or Survivor Accounts

These mandates are designed for continuity. On the death of one holder:

• The survivor can continue to operate the account.
• Payment to the survivor is treated as a valid discharge for the bank.

In a "Former or Survivor" account. The former operates while alive; on the former's death. The survivor steps in. This is why many couples and families prefer these modes.

Quick Comparison - Death in Joint Accounts

Account Type	On Death of One Holder	Who Gets Paid
Jointly Operated	Operations stopped	Survivor(s) + legal heirs jointly
Either or Survivor	Survivor continues	Surviving holder
Former or Survivor	Survivor operates after former's death	Surviving holder
Sole Account	Operations stopped	Nominee (as trustee) or legal heirs

Partnership Firm Accounts and Clayton's Rule Risk

Partnership firms carry unlimited liability. Legally. The death of any partner dissolves the firm unless the partnership deed provides otherwise.

The banking treatment splits by balance type:

• Credit balance: Operations are stopped until a fresh mandate is received from the surviving partners.
• Debit balance: Operations are stopped immediately to fix the liability of the deceased partner's estate.

Why stop a debit account so fast? To avoid Clayton's Rule. This rule follows FIFO logic - the first amount credited clears the first amount debited.

If the bank keeps the account running after a partner's death. Fresh credits can wipe out the deceased partner's old liability. Unfairly shift the burden onto the surviving partners.

Freezing the account protects everyone's legal position.

Trust Accounts - Operating in a Representative Capacity

Trust accounts are representative accounts. The trustee operates on behalf of the trust. Never in a personal capacity.

So the death of a trustee is handled differently:

• Earlier cheques issued for the trust remain valid.
• Operations continue as per the trust deed. With a co-trustee or successor stepping in.

The trust survives the individual. That is the core idea to remember.

Company Accounts and Perpetual Succession

A company enjoys perpetual succession. It is a separate legal person, distinct from its directors and shareholders.

Therefore, the death of a director does not affect:

• Account operations, which continue normally.
• Cheque validity for cheques already issued.

Ownership and management are legally separate. The company simply updates its authorised signatories through a fresh board resolution.

Agency Accounts - Agent vs Principal

Agency accounts hinge on one question: who died. The agent or the principal?

• If the agent dies. Operations can continue - the principal is still alive. Can appoint another agent.
• If the principal dies, the agency terminates immediately.

So an agent's cheques become invalid the moment the principal dies. The agent's authority flows from the principal. And that authority cannot outlive its source.

GST Fundamentals for Bankers

GST is a destination-based indirect tax with a dual structure. It is consumed where the goods or services are used. Not where they are produced. Banks pay GST on many services. So the basics show up in exams.

The Four GST Components

• CGST - collected by the Central Government on intra-state supply.
• SGST - collected by the State Government on intra-state supply.
• UTGST - the union territory equivalent of SGST.
• IGST - levied on inter-state supply and imports, collected by the Centre.

GST Rate Slabs

India uses a multi-slab structure. Always confirm the exact current rates on the latest official notification. As slabs are periodically revised.

• 0% - essential goods.
• 5% - daily necessities.
• 18% - the standard rate (most banking services fall here).
• 40% - luxury. Sin goods (confirm the top slab on the latest official GST notification).

Composition Scheme

The Composition Scheme simplifies compliance for small taxpayers:

• Turnover limit: approximately Rs 1.5 crore (general). Rs 75 lakh (special category states) - confirm the latest threshold on the official GST portal.
• No Input Tax Credit (ITC) is allowed under this scheme.
• Tax is paid at a flat. Lower rate on turnover, with simpler returns.

TDS Provisions - A Core Banking Compliance Area

TDS (Tax Deducted at Source) is bread-and-butter branch compliance. Banks deduct tax on deposit interest and deposit it with the government. Errors here attract penalties, so examiners love this section.

TDS on Interest - Section 194A

• Senior citizens: threshold of Rs 1,00,000 in a financial year.
• Other depositors: threshold of Rs 50,000 in a financial year.
• Rate with PAN: 10%.
• Rate without PAN: 20% (Section 206AA).

Always confirm current thresholds. Rates on the latest official Income Tax notification. As they are revised in Finance Acts.

Declaration Forms - Avoiding Deduction

• Form 15H - for senior citizens whose total income is below the taxable limit.
• Form 15G - for other resident individuals below the taxable limit.

These self-declarations tell the bank not to deduct TDS when the depositor's income is not taxable.

TDS Rates at a Glance

Scenario	TDS Treatment
Interest with PAN	10% (Section 194A)
Interest without PAN	20% (Section 206AA)
NRE / FCNR deposits	No TDS (interest is tax-free)
NRO deposits	Section 195 - approx. 30% + surcharge + cess

Special TDS Scenarios You Must Know

• Minor accounts: the minor's interest income is generally clubbed with the guardian's income.
• Joint deposits: TDS is reflected in the first holder's PAN.
• NRE / FCNR accounts: no TDS, as the interest is exempt.
• NRO accounts: taxed under Section 195. At roughly 30% plus surcharge. Cess - confirm exact rates on the latest official notification.

Penalties Every Banker Must Remember

TDS penalties are a frequent one-mark question. Learn the difference between not deducting and not depositing.

• Non-deduction or short deduction: interest of 1% per month.
• Deducted but not deposited: interest of 1.5% per month.
• Late filing of TDS return: Rs 200 per day (capped at the TDS amount) under Section 234E.
• Incorrect statement: penalty ranging from Rs 10,000 to Rs 1,00,000.

Confirm all figures on the latest official Income Tax notification before relying on them in practice.

How to Study This Topic - A Practical Plan

Do not memorise blindly. Learn the logic, then drill it. Here is a simple study path:

1. Group by entity type. Sole, joint, partnership, trust, company, agency - one rule each.
2. Ask "does the entity survive the person?" Companies and trusts survive. Individuals and agencies often do not.
3. Make a one-page table for deceased accounts, GST components, and TDS rates.
4. Practise application questions. Use mock tests to test mixed scenarios under time pressure.
5. Revise penalties last. They are pure recall, so revise them right before the exam.

For deeper conceptual coverage, explore our free guides on banking law and compliance.

Common Mistakes to Avoid

• Treating the nominee as the owner. The nominee is only a trustee of the funds.
• Honouring a pre-dated cheque after death. Authority to pay ends at death.
• Applying one rule to all joint accounts. The mode of operation decides everything.
• Forgetting Clayton's Rule when handling a partner's death with a debit balance.
• Confusing the 1% and 1.5% TDS interest rates. Non-deduction is 1%; non-deposit is 1.5%.
• Assuming NRO is tax-free like NRE. NRO interest attracts TDS under Section 195.

Frequently Asked Questions

Can a bank pay a cheque issued by a customer who has just died?

No. Once the bank has confirmed information of death. The authority to pay ends. A cheque presented after death is dishonoured. Even if it was issued and dated before the customer died.

Is a nominee the legal owner of the deceased's bank balance?

No. A nominee receives the funds only as a trustee. Legal ownership is decided by the will.

Succession law. Or a succession certificate. And the nominee must pass the money to the rightful legal heirs.

What happens to an Either or Survivor account when one holder dies?

The surviving holder can continue to operate the account. Payment to the survivor is a valid discharge for the bank. Which is why this mode is popular for couples and families.

Do NRE and NRO accounts have the same TDS treatment?

No. NRE and FCNR interest is tax-free, so no TDS applies. NRO interest is taxable. Attracts TDS under Section 195 at roughly 30% plus surcharge and cess. Always confirm current rates on the latest official notification.

Which forms help a depositor avoid TDS on interest?

Form 15H is for senior citizens. Form 15G is for other resident individuals. In each case where total income is below the taxable limit. These declarations request the bank not to deduct TDS.

Conclusion - Turn These Rules Into Marks

Operations in deceased accounts. GST fundamentals and TDS provisions reward one thing: understanding the logic. Once you know why a bank freezes an account or why NRO attracts TDS. The answers become obvious.

Build your one-page tables, drill mixed questions, and revise penalties last. Do this, and these three topics shift from confusing to easy marks. Stay consistent. Trust the process. And walk into your JAIIB, CAIIB or IIBF exam with calm confidence.

Related Guides

For more on operations in deceased accounts. See the official IIBF circulars. Our chapter-wise free notes on iibf.store.

For more on “operations in deceased accounts”, explore our free mock tests and chapter notes on iibf.store.

Bookmark this page — we keep our “operations in deceased accounts” guidance current as IIBF revises its rules.

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