The Central Board of Direct Taxes (CBDT) has clarified that deposits with co-operative banks will attract tax deduction at source (TDS), even if held by a nominal member, associate member and sympathiser member of the banks.
The clarification was issued by the CBDT on Wednesday after representations by the directors of some co-operative banks in Gujarat.
The move is seen as a curb on co-operative banks which induct only nominal members in their banks, confining the real membership among family members of the directors.
Sources said there could be a strong reaction to the fiat from nominal members who have substantial amount of deposits with co-operative banks as they have been assured of no TDS.
"A question has also been raised as to whether nominal members, associate members and sympathiser members are also covered by the exemption under Section 194A(3)(V). It is hereby clarified that the exemption is available only to such members who have joined in application for the registration of the co-operative society," the circular issued and signed by Anand Jha, deputy secretary of the revenue department, clarified.
"Representations have been received in the CBDT seeking clarification as to whether a member of a co-operative bank may receive without TDS interest on time deposit made with the bank on or after July 1, 1995. The board has considered the matter and it is clarified that a member of a co-operative bank shall receive interest on both time deposits and deposits other than time deposits with such co-operative bank without TDS," the circular added.
"This circular will help us to generate revenue and keep a tab on huge amount of deposits kept with co-operative banks which never been brought under the income tax jurisdiction. We will now be in a position to control such deposits evading paying taxes and track down black money," said the top official of Income Tax Department here on Thursday.
As this latest circular issued by the CBDT clearly says that only the genuine members of the co-operative banks, who have been involved since registration and also have voting powers, will not be covered under the TDS, the system of luring depositors by co-operative banks saying deposits with their banks are not under TDS, will now face a major blow.
"The whole racket of inducting nominal members or associate members by some co-operative banks will now be stopped and the such banks will have to start the process of inducting only genuine members and also more number of genuine members for running their banks," said the managing director of a co-operative bank based in Saurashtra, who remained instrumental in pursuing the matter with CBDT.
Gujarat Minister of Co-operation and Protocol, Vadibhai Patel, said, "This clarification was sought since long time and we hope that the co-operative banking process will now have a cleaner image."
