Friday, August 26, 2016

Depositors, Be(a)ware !

For sometime, the Government has been after the bank depositors, even those with small sums of deposits, in ensuring that every rupee of interest they earn on deposits is taxed and the recovered tax finds its way into the coffers of the government. Fine, No issues with that  and I for one would urge every citizen to pay their taxes and ensure revenue for the government to serve the people again. But, in the modus operandi that is being adopted lies so many loopholes, making the poor depositor gasp, squeezed between the banks and Income Tax authorities.

Banks, happy to have got some one to point the finger at, deduct taxes at will, on the interest paid on deposits and  some banks do not even care to listen to the depositors about the investments towards tax. In my opinion, even this is fine as banks  nowadays claim that they are not equipped with enough resources to have a one to one with customers on their tax plans and so escape by quoting the Government's directive in deducting tax at source (TDS), whenever the same exceeds the threshold value, as per their records.

The TDS thus recovered from the depositors have to be remitted by the banks to ITO and the status of the same could be seen by the individual depositors by periodically by logging into the Income Tax website   and look for Form 26AS.

Where the banks are erring is in outsourcing passing of this TDS data to ITO ,  to some third parties, mostly through the Bank's auditors . The data entry havoc that is being wreaked is a problem greater than the tax deducted itself..

The travails are in many forms:

1. The transaction dates mentioned in 26AS are not in sync with the actual date of credit of interest to the customers, making it difficult to identify the entry for reconciliation.

2. There are entries which do not belong to customers, increasing their taxable income, unnecessarily, at times even pushing the depositors to higher brackets . This is ostensibly because of messing up while keying in the PAN number, which is the key identifier of the depositor, during data entry.

3. After observing the discrepancies from the downloaded 26AS , when the depositor draws the attention of the banks to the discrepancies, some  banks simply throw up their hands saying 'this is not being done by us' or 'check with our auditors to whom we have entrusted the job'. This is ridiculous and most irresponsible, to say the least. While the bank has made the credit entry and are performing a legal obligation to report the credits of the depositor to the Income Tax department, should it not own the accuracy of data being passed? Banks are choosing to entrust this job of passing data , on their own volition without consulting, to a third party and the depositors could in no way be made accountable for errors and discrepancies created by such outsourced agencies chosen by banks for their own convenience.

4. To cap it all, its surprising that the Income tax authorities too would take only the version of 26AS as the final data and would not buy depositor's disputes on the same. Realizing the limitations of Banks, Income tax department could also arrange to provide some grievance redressal mechanism, instead of blindly taking what has been given by the banks.

If the depositor happens to catch up with such gaffes at the last stages before filing of the tax return, he is pressed for time and so has to suffer the injustice imposed by the bank and pay tax for interest amounts that have not been received by him !

So, what the depositor can do:

1. Keep track of your periodical credits from these sources by maintaining your own records .

2. After every quarter of the year , extract Form 26AS (from the website address given elsewhere in this post) and validate the entries there with your records.

3. Request for Form 16A, from the bank branches and make sure that the data passed by them to the ITO are correct and are actually received by you.

4. If you have deposits in more than one bank or branch, please note to get 16A from ALL the banks or branches where you hold deposits and receive credit from them.

In case of discrepancies, like entries not belonging to you,  take up with the bank(s) with a written communication and follow up.

After all these take the easiest of the steps -  just sit back and pray that your hard earned money is not squandered away by others' inefficiencies. 


  1. My experience with most of the private banks has been quite professional. They remit to ITO properly & provide me with TDS certificates. However, with bank like IOB, inspite of repeated request to deduct TDS, they dont do that and make us responsible for paying tax while submitting return. They have no clue of anything. So what I have started doing is migrate my FDs from these to more professionally managed banks. I dont think ITO will be willing to make allowances for other service providers' in-competencies. There will be no end to it.

    1. True, Narayan. That is one more option than to keep tracking these !

  2. "Useful post, very well written. Hope it reaches many" - R, Murugan commented on 26-Aug-2016

  3. Thanks for going into the minutest detail and giving a very useful blog - Rajendran, V

  4. Lakshminarayanan, VAugust 27, 2016 at 7:43 AM

    Thanks for sharing your experiences and it is a fact that these are the woes of many depositors. These issues happen mostly with Public Sector Banks....... My personal appreciation to your posts in kapali canvas" -Lakshminarayanan, V

  5. Nice post Kapali. Why not we write to IT department, suggesting to keep in place a suitable redressal mechanism for such discrepancies. They can have someone like an ombudsman between the TDS deductor and the deducted.