Bank customers allege wrong TDS deduction on term deposits

Bank customers allege wrong TDS deduction on term deposits

by TNN | Jul 28, 2012, 05.39AM IST




INDORE: Bank customers are alleging wrong deduction of TDS from the term deposits (STDRs) where there is no actual credit or payment of interest which credited or paid on cumulative basis.

S Jamindar, a customer of State Bank of India having a 'term deposit' account, in his letter addressed to the RBI governor and chairman, Central Board of Direct Taxes (CBDT), has written, "I would like to draw your kind attention on a 'term deposit' account wherein interest has been credited cumulatively on the date of its maturity while TDS was wrongfully deducted on yearly basis." ToI has a copy of the letter in its possession.

The issue being that if a bank is justified in deducting 'TDS' under the provisions of section 194A of the Income Tax Act 1961 on yearly basis on the amount of interest calculated. But how can the TDS be deducted in a hypothetical manner on the time deposit account without actual credit or payment of interest?

The customer believes that there was clear-cut violation of the provisions of section 194A of the I-T Act 1961. It has happened at a time when CBDT has already issued a clarification on the issue. The CBDT, vide its Circular No 03/2010 issued vide FNo 275/66/2007-I-T (B) dated March 2, 2010, reads "It is clarified that since no constructive credit to the depositor's / payee's account takes place while calculating interest on time deposits on daily or monthly basis in the CBS software used by banks, tax need not be deducted at source on such provisioning of interest by banks for the purposes of macro monitoring only.

In such cases, tax shall be deducted at source on accrual of interest at the end of financial year or at periodic intervals as per practice of the bank or as per the depositor's / payee's requirement or on maturity or on encashment of time deposits; whichever event takes place earlier; whenever the aggregate of amounts of interest income credited or paid or likely to be credited or paid during the financial year by the banks exceeds the limits specified in section 194A".

As such, the customers are bound to offer interest income for taxation which in facts has not been earned or accrued actually to him/her during said period. This is principally wrong and certainly against the provisions of the Income Tax Act/Rules. As per I.T. Act, the interest credited cumulatively on the 'Cumulative Time Deposit' has to be taxed cumulatively in the year of maturity of such deposits, says the letter.