TDS has to be recovered and remitted in the year of accrual and not on maturity. This tax can be deducted only on the interest amount and not from the principal
Fixed deposits (FD) are a popular way to earn a fixed amount of interest income. This is especially true for the senior citizens who often have no other way to generate income than to live off the quarterly FD interest. The rate of interest changes as per the bank's policy and current monetary situation. However, the FD principal is always safe. But what would you do if one fine day you happen to realise that your trusted bank has reduced the principal amount of your fixed deposit? Let us find out how banks are reducing the principal amount of FDs, and how can you seek redressal.
Whodunnit
Santanu Sanyal put his life's savings in the Salt Lake branch of State Bank of India (SBI). Everything was going smoothly, till a few months ago when he discovered that his interest income had dropped.
To his utter dismay, the retired person found out that SBI had deducted Rs 20,000 from the principal amount. The bank branch officials told him that the money was deducted from his FD principal, as the bank had not deducted enough tax in the past on the interest income of the FD.
"How can the bank touch my FD without informing me, more so when I have enough fund in my savings bank account in the same branch," the hapless retired citizen asks.
"If the bank has failed to deduct tax on time, it is not my fault, it is a lapse on the part of the bank. Why should I suffer for something for which I am not responsible? What the bank has done is preposterous and unacceptable," Sanyal asks, apprehending that in this way his whole savings might disappear one day.
Everywhere the retired person gets the stock reply, it is a 'system generated failure'. It is a surprise that systems work with amazing alacrity when it comes to retail customers, while the same system fails while recovering a large number of bad loans taken by corporates.
DNA Money did not get any reply from SBI Corporate Communications department on this matter.
TDS recovery from interest
According to banking experts, Tax Deducted at Source or TDS can be deducted only from interest income.
Sanjay Sinha, a financial expert, said: "Customers earn interest from the FD. Hence, any TDS can be recovered from the interest income. Banks cannot touch the FD principal to justify TDS recovery. This goes against the very principle of natural justice," said Sinha, a former banking professional.
TDS has to be recovered and remitted in the year of accrual and not on maturity. This tax can be deducted only on the interest amount and not from the principal.
Adhil Shetty, co-founder and chief executive officer, BankBazaar.com said as per Central Board of Direct Taxes (CBDT) norms, banks have to deduct tax in advance per quarter on an accrual basis. This means banks typically calculate the total interest earned in a year, even in case of cumulative FDs where the interest is not paid out but rolled back into the FD.
If the interest earned in one financial year is taxable, they deduct TDS every quarter at 10% of the interest earned.
"For whatever reasons, if the bank deducts the TDS at one shot at the end of the year instead of every quarter, then they have to inform you accordingly. In case there is any shortfall, you can pay it separately or ask the bank to deduct it from the SB account. The bank cannot deduct the TDS amount from the FD principal," emphasises Shetty.
Seek redressal
Many customers silently tolerate such incidents. They also to fail to report them.
Experts say that bank customers must lodge protests at the bank branch, circle office and headquarters by sending their grievance in writing to top authority at the concerned bank.
If nothing happens, the customer can approach the Banking Ombudsman in case her/his grievance is not redressed within 30 days of lodging the complaint as per extant guidelines, says a banking union office-holder.
To avoid instances of TDS miscalculation and recovery of TDS from bank FD, Shetty of BankBazaar.com says as a practice, ask the bank for the TDS certificate. "This will give you clarity about how much tax you owe and how much has been deducted," he added.
Once you know that TDS has not been properly deducted, the customer should do two things: first, inform the bank about the error and second, pay the tax shortfall while filing annual income tax.
TAXING MATTER
- TDS has to be recovered and remitted in the year of accrual and not on maturity. This tax can be deducted only on the interest amount and not from the principal
- If nothing happens, the customer can approach the Banking Ombudsman in case her/his grievance is not redressed within 30 days of lodging the complaint as per extant guidelines, says a banking union office-holder
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