A great deal of Indian investing is done by one person on behalf of somebody else — a parent investing for a child, a spouse managing money the other earned, a son handling a retired father's savings. It is natural, often sensible, and full of rules that people only discover at tax time or at a bank counter.
This explains the structure. Tax provisions and account rules change, so check current rules for any specific situation.
Ownership follows the name, not the intention
The first principle is simple and frequently ignored: an investment belongs to the person in whose name it is held. Not the person who paid for it, not the person it was meant for, not the person who manages it.
That has consequences people rarely think through. Money invested in your own name for a sibling is legally yours; if you die, it passes under your arrangements, not theirs. Shares bought in a parent's name with your money belong to the parent. A holding in a child's name belongs to the child, including when they come of age and decide for themselves what to do with it.
The practical rule is to decide whose money it is first, and hold it in that person's name. If the intention is to give the money away, give it properly and let it be held by the recipient. If the intention is to keep it and manage it for somebody, keep it in your name and be clear with everybody that it is yours.
Every demat and trading account should be in the name of the actual owner, operated by them or with their explicit and recorded authority. Operating somebody else's account using their login and credentials, however well-intentioned, is not a sound arrangement and is not something a broker's terms permit.
Clubbing: when the income is still yours
Indian tax law contains provisions, generally called clubbing, that stop income being shifted to family members simply by moving assets into their names.
Spouse. If you transfer money or assets to your spouse without adequate consideration — a gift, in other words — the income those assets earn is generally treated as your income for tax, not theirs. The gift itself between spouses is not taxed, but the returns it produces are clubbed back to the giver.
Minor children. Income arising to a minor child is generally clubbed with the income of the parent whose income is higher, with limited exceptions such as income from the child's own skill or effort and a small exemption. Investing in a minor's name does not, by itself, move the tax.
Adult children and parents. Once a child is an adult, or when you give money to a parent, the income from gifted assets is generally taxed in the recipient's hands, not clubbed back. That is why gifting to an adult family member in a lower tax bracket can legitimately change the tax outcome, while gifting to a spouse or minor usually does not.
Two further points worth knowing. Income earned on the clubbed income — interest on reinvested interest, for example — has its own treatment, and the rules have fine print. And gifts between specified relatives are generally exempt from tax in the recipient's hands, which is a different question from where the subsequent income is taxed. The details are where professional advice is worth paying for.
Accounts for minors and for elderly parents
For a minor, a demat account can be opened in the child's name and operated by a parent or legal guardian until the child becomes an adult. At that point the account must be converted to a regular one in the child's own name, with their own documentation, and control passes to them. Anybody investing for a child should be comfortable with that moment arriving.
Minor accounts are generally suited to holding investments rather than active trading, and some product types are restricted for them. Check the broker's current rules before planning anything beyond long-term holding.
For an elderly parent, the cleanest arrangement is an account in the parent's name, operated by the parent with help, or by a family member acting under a properly executed and limited authority. Joint holding, where permitted, and a registered nominee on every account prevent the most common difficulties when a parent dies.
Nominees matter in every case. An account without a nominee leaves heirs facing a slower and more expensive process. Adding one takes minutes, and it is the single most commonly skipped step in family investing.
Authorisations worth reading, and some worth never signing
Managing money for somebody else usually involves some authority to act. Some kinds are sensible; some are how family money has been lost.
Reasonable: a limited, documented authority for a specific purpose, given by the owner, recorded with the broker or bank, and revocable. The owner can see what is being done, and the person acting is accountable.
Dangerous: handing over login credentials, OTPs or signed blank instruction slips; signing a broad authority in favour of a third party who is not family; and allowing anybody who sells financial products to operate an account on your behalf. Legitimate advisers and brokers do not need your password.
Keep the owner informed. Statements from the depository go directly to the account holder. Make sure the owner's own phone number and email are registered, so that they see every transaction even when somebody else is managing it. It protects both people: the owner from misuse, and the manager from later accusations.
The overall principle is short. Hold it in the right name, understand whose income it is, register a nominee, and never manage somebody else's money in a way you would be uncomfortable showing them on their own statement.
An account in the right person's name
With their own contact details, so statements reach them. Free to open
We are not tax or legal advisers and this is not advice. Clubbing provisions, gift taxation, minor account rules and authorisation requirements are set by law, the regulator and individual brokers, and change from time to time — verify the current position or consult a qualified professional. This is educational material. We run no tips group and no signal service, we manage nobody's money, and no return is promised.
Disclosure: the account-opening link on this page is under Atul Shrivastava's Zerodha Authorised Person registration (NSE AP Reg: AP2516003481; Zerodha Broking Ltd. SEBI Reg: INZ000031633) and earns a revenue share. TheFinBaba is not a SEBI-registered Investment Adviser — this content is educational, not investment advice.
Frequently Asked Questions
If I invest in my wife's name, whose income is it for tax?
If the money was gifted by you, the income it earns is generally clubbed with your income under Indian tax rules, even though the investment is in her name. The gift itself is not taxed. Check current rules and specifics with a professional.
Can I open a demat account for my child?
Yes, in the child's name, operated by a parent or guardian until the child becomes an adult, when it must be converted to a regular account under their own control. Income arising to a minor is generally clubbed with a parent's income.
Is income from money gifted to my adult son taxed in my hands?
Generally no. Clubbing applies mainly to spouses and minor children. Income from assets gifted to an adult child is usually taxed in the child's hands, and gifts between specified relatives are generally exempt for the recipient.
Can I use my father's login to manage his account?
It is not a sound arrangement and brokers' terms do not permit it. The account should be operated by the owner or under a proper, documented and limited authority, with the owner's own contact details registered so statements reach them.
Why does a nominee matter?
Without one, heirs face a slower and more expensive process to claim holdings. Adding a nominee takes minutes and is the most commonly skipped step in family investing.
Related Reading
- Managing remittance money, for Kochi
- How the account and nominee work
- Whose capital gains, and how taxed
- The family cushion that comes first
- If the investor is a retired parent
- The course for whoever does the managing
Disclaimer: TheFinBaba provides educational content only - this is not investment advice. Trading involves risk of loss.
