The Central Board of Direct (CBDT) circular clarifying the applicability of tax deduction at source (TDS) on deposits by co-operative bank members seems to have roiled officials of the bigger banks, while the smaller ones seem unaffected -- maybe even happy.
The acting chairman of the Gujarat Urban Co-operative Banks Federation, Natwarlal Patel, dubbed the circular "an instrument to harrass depositors of more than 300 co-operative banks in the state".
"This is harrassment because depositors will now have to file tax returns, provide information to the income tax officials. There was no need for these time-consuming and painstaking procedures," Patel said.
The CBDT circular said excepting for deposits from members who have been registered since the registration of the co-operative bank and who also have voting rights, deposits of other members such as nominal members, associate members and sympathiser members will now attract TDS on interest.
The small co-operative banks, however, are happy. "These people (members of big co-operative banks) are angry only because some of them have huge deposits with their own banks and also deposits of their friends and families which never attracted tax. The basic loophole in the law now has been tightened and some people fearing exposure of their huge black money deposited in co-operative banks, now fearing legal action, started attacking the CBDT."
Amit Shah, chairman of Ahmedabad District Co-operative Bank, one of the largest in Gujarat, said, "We are ready to challenge the circular in the court. The circular will take toll on the health of the co-operative banking sector. People will start withdrawing their deposits, leading to liquidity crisis in small banks."
Shah, who is a BJP member of the Gujarat assembly, added, "When we try to revive sick banks, this circular will become an impediment."
Shah, however, rebuts the point of view of smaller co-operative banks. "In a lot of co-operative banks people have small deposits and being nominal members or associate members, they enjoy the advantage of no TDS. This policy is going to work even against the interests of the poor."
Patel said his federation will take the matter to the finance minister through the National Federation of Co-operative Banks in New Delhi. "We will seek his intervention to withdraw the diktat," Patel said.
