Cooperative banks in Goa are agitated over a recent Income Tax Department circular asking them to deduct tax at source (TDS) on interest on fixed deposits above ₹10,000.The circular follows a judgment of a Karnataka Income Tax Tribunal in Bangalore last month, which, in a Belgaum-based co-operative bank’s case, upheld that interest on FDs above ₹10,000 be subjected to TDS. The tribunal judgment supplants a Central Board of Direct Taxes (CBDT) rule which says that interest from FDs of all co-operative banks is exempt from tax.
As the Income Tax tribunal jurisdiction covers Goa, seven Goan cooperative banks received notice recently from the Income Tax Department asking them to deduct tax for the year 2013-14. What has upset them is that the tribunal jurisdiction affects only them and not the multi-State co-operative banks. They fear a flight of deposits to multi-State banks. Former Union Law Minister Ramakant Khalap, who heads Mapusa Urban Cooperative Bank Ltd, one of the prominent cooperative banks in the State, told Business Line cooperative banks are small organisations catering to common people who are often not conversant with the nitty-gritty of TDS, claiming of refunds, etc.
As of now banks are left with no option but to comply with the IT circular and deduct TDS. Khalap said that bankers have joined hands, and seven banks have had two rounds of talks with the Income Tax authorities pleading them not to extend the tribunal judgment to them. The authorities declined to intervene and expressed helplessness.
Now, the banks are banking on their petition to the Central Board of Direct Taxes in New Delhi in this regard. The petition to CBDT was made through the National Federation of Co-operative Banks but it is yet to receive any response, Khalap said. For the moment, the seven banks are awaiting a Dharwar High Court verdict on a writ petition against the tribunal judgment.
After consultation with advocates they have deferred plans to file a stay on the tribunal judgment in the Bombay High Court at Goa, until the Dharwar verdict comes through. Officials in the Income Tax Department here indicated that the tribunal ruling appears to be triggered by the fact that FDs in co-operative banks are used as a tax haven by non-members who park large sums of money in banks.
However, Goan bankers say that the percentage of outsiders having FDs is insignificant and most of their depositors are their members. In the deposit-rich tiny State, the Goa Economic Survey 2013-14 tabled in the recent budget session of the State Legislative Assembly revealed that eight local co-operative banks (one of them multi-State) together hold deposits of ₹2,790 crore as on March 2012.