TDS on bank deposits: RBI’s advice to acknowledge 15-G/15-H is only half a step

Whether it is a computer or a human error, banks must refund the amount they wrongly debit. While RBI has taken the first right step by asking the banks to issue an acknowledgment, it should ask the banks to instantly refund the tax wrongly deducted

As per the present Income Tax (I-T) rules in force, depositors who are not liable to pay any tax on their income can get their interest on bank deposits without any deduction of tax if they submit Form 15-G  or 15-H, as appropriate, to the bank concerned in the beginning of every financial year.  But it has been the experience of several depositors that even when you have submitted these forms; banks continue to deduct tax at source on such deposits putting depositors into considerable inconvenience.

Here is a plight of a senior citizen:

A senior citizen who underwent a harrowing experience had this to say:  

“ When I asked the bank manager as to why tax has been deducted when I had filed Form 15H well in time, he said that it was a computer mistake and asked me to file my tax return and obtain a refund from the tax department. When I asked him to refund me the tax deducted, as I am not liable to pay any tax, he said that it was already remitted to the government and that he could do nothing about it now. I had to simply return home disappointed. I could not even think of changing the bank as it is close to my residence and I had authorized this bank to pay my utility bills through ECS and changing of all these will be a herculean task. So I resigned to my fate and continued with the same bank as I had neither the inclination nor energy to fight out this matter with higher authorities in the bank though such deductions do pinch me a lot.”

This is the real life story of a senior citizen who suffered in silence. Many times, when you bring this lapse to the notice of the bank, the bank officials very casually advice the depositors to get the refund from the I-T department by filing their tax return. It is a punishment meted out to the depositor for the blunder committed by the bank. Because, filing of a tax return just to get a small refund is so cumbersome that many people feel that it is a remedy worse than the disease.

RBI advises banks to issue an acknowledgement when Form 15G/15H is submitted:

To mitigate the inconvenience caused to the depositors, the Reserve Bank of India (RBI) had on 31 May 2013 rightly issued the following advice to banks:
“As you are aware banks are not required to deduct TDS from depositors who submit declaration in Form 15-G/15-H under Income Tax Rules, 1962. However, it has been brought to our notice that despite submission of Form 15-G/15-H by customers, banks are deducting tax at source, at times, causing inconvenience to customers resulting in a number of complaints.  Such instances arise because either the forms are misplaced or a track is not kept of forms received in the branches.

“The matter has been examined by us in consultation with Indian Banks’ Association (IBA). With a view to protect interest of the depositors and for rendering better customer service, banks are advised to give an acknowledgment at the time of receipt of Form 15-G/15-H. This will help in building a system of accountability and customers will not be put to inconvenience due to any omission on part of the banks.”

RBI’s advice to banks unfortunately does not solve the problem:

RBI’s advisory raises the following questions:

  1. RBI has advised the banks to give an acknowledgement for having received the Form 15G/H when tendered by the depositor. How is this going to help the depositors if tax is wrongly deducted by the banks?
  2. Even after the form is acknowledged by the branch, if the bank wrongly deducts the tax, what are the remedies available to the depositor?
  3. If the bank asks the depositor to claim the refund from the tax department, is it fair to the depositor?
  4. Building a system of accountability by issuing an acknowledgment may be useful only to the bank, but it is not clear as to how it will help the depositors and reduce inconvenience to them.

It is necessary to provide immediate relief to the depositors in all such cases:

As most of these customers are small depositors belonging to the middle class, who do not pay any income tax as they fall under the exempted category, it is very irksome for them to seek redressal of their grievances by writing to the head offices of the bank concerned or through the banking ombudsman, etc. So in all such cases, in all fairness, banks should provide instant relief to such depositors as under:

  1. The bank should refund and re-credit the tax wrongly deducted right away to the depositor’s account along with the interest on this amount for the period foregone by the depositor due to the mistake committed by the branch.
  2. Besides, the banks should pay a reasonable amount of compensation to the depositors for the anguish and inconvenience caused and this should also be credited to customers’ account without asking. This will also serve as a deterrent against repetition of such mistakes in future.
  3.  If in spite of pointing out the mistake committed by the bank, if the amount wrongly debited is not re-credited to the customer’s account instantly for whatever reasons, a penalty of Rs100 per day for each day’s delay should be levied on the bank, as stipulated by RBI in the case of ATM withdrawals, where cash was not dispensed with but amount debited to customers’ account.
  4. Many banks still follow a system of crediting the net amount of interest, after deducting tax, to the customers’ account, thereby camouflaging the tax deducted which is not made known to the customers at the time of deduction. RBI has to direct the banks to credit the gross amount of interest to depositors’ account and simultaneously debit on the same day the tax deducted at source, so that the tax deduction is visible to the customers when they get their pass books filled up. This will help the customers to know whether any tax has been wrongly deducted in their account and if so seek appropriate remedy quickly.

In short, the present advice of RBI to banks to simply give an acknowledgment to customers when they submit Form 15G/H is just a flash in the pan as it serves a very limited purpose but fails to deliver anything of value to the customers. Whether it is a computer mistake or a human error, banks have a bounden duty to refund the amount wrongly debited by them. While RBI has taken the first right step by asking the banks to issue an acknowledgment, which will serve as a proof for the customers to show that the form in fact has been duly submitted to the bank, RBI should go a step further and ask the banks to instantly refund the tax wrongly deducted, as it is patently a mistake committed by the bank, for which the customer should not be made to suffer.  

If the intention of the RBI is to mitigate the hardships faced by the innocent customers due to the casual attitude of the banks, the only solution is to provide the much-needed relief to them on the lines suggested above and thus ensure a high quality of service which all bank depositors not only deserve but also have a right to expect.                                                                                                                                                  

(The author is a banking analyst and writes for Moneylife under the pen-name of Gurpur)

5 years ago
I plan to open fixed deposit in future with Bank. Can I submit FORM-15G even if I do not
have FD with bank. I plan to open SCSS FD with bank and interest from it will not exceed Taxable limit i.e. 3L but will exceed 10K. I want to avoid any TDS by bank even on first Interest payment. So, I want to submit FORM-15H prior to opening FD & preferably online through Internet Banking. I am SBI customer. Bank manager seems to be confused about this issue.
Rupesh kumar
6 years ago
My mom has made FD of RS.7500, on 1998, and its maturity date is march 2018, and the maturity value 1,5,5,000rs...but bank paid me only 120,000 RS and saying that remaining amount has deducted by the bank as TDS, that I didn't submit my pan card...but actually but didn't intimate to submit pan card..and bank doesn't inform me regarding TDS deduction also....the same I asked the manager, he said bank does not have any responsibility to intimate customers after TDS deduction... Is it true....?? Pls reply me any one...pls help me for getting my amount bank....!!
Ramesh Goradia
7 years ago
Well, most Bank deduct TDS but do not immediately deposit into treasury .generally, this deducted TDS is credited into treasury on " Quarterly ' basis. So until it is deposited into treasury, the branch manager has leverage to credit this TDS bank into customer's account. Once this TDS is credited into treasury, then only way to get refunf is by filing a return. Here are steps to follow for avoiding this happening: (1) File form 15 / G or H and take acknowledgement with signature and stamp. (2) If you are computer versatile, check your account periodically to ascertain if TDS has been or not deducted. ( 30 Approach bank manager within reasonable time before end of relevant quarter to demand refund of TDs back into customer's account(50 Proceed to report matter to " OMBUDSMAN"in case manager does not comply. (5) Periodically check account and get passbook updated well before end of quarter.
Anuradha Vaidya
7 years ago
Hello sir this is anuradha abhay vaidya from akola maharashtra i have my fd and bank acount at hdfc dhfl and sbi at akola itself i was submitted my 15g form for 2016 2017 financial year and 15h as my mom also have an acount and fd at hdfc bank for financial year 2015 2016 even though my bank deducted my tds and now not ready to pay me back or refund me back my deducted amount plz guide me what should i do for this
Abhay Bhandari
7 years ago
Where to complain if TDS is wrongly applied for one quarter only?
Riyaz Ahmad Khan
8 years ago
I am not a any tax payer, but bank deducted TDS on my fix deposit yearwise i.e. 2013, 2014, 2015. I submitt form 15G but baks said that bank computer or program not accept my PAN No. So please write me how I receive my deducted TDS of previous years i.e. 2013, 2014, 2015
Narendra Nath Hazra
9 years ago

[email protected] [email protected]
Nov 15 at 4:08 PM
Complain No-MUMT1114129405 dated 15-11-14

In one of my FD No 50300026521281 suddenly i observed that Rs. 2457/- has been deducted from the interest earned which is my only live hood at my old age of 78.

When i inquired from the Bank it was told to me that i had not submitted the 15H but on production of the receipt as given in attachment , it was told that i have not put the ward no in proper place. I live very near to bank and my mobile no as well as e-mail id is available with bank they could not even inform me the same for correction though they are supposed to check up the form before receiving the 15H.
You are aware how difficult it is to recover the amount from IT dept. I would kindly request you to kindly refund the same.

Thanking you,

Yours faithfully ,

Narendra Nath Hazra

arun adalja
1 decade ago
rbi s circular does not help depositors it helps only to bank officers who forgot to enter in the system and so ultimate loss to investors.why rbi is not increasing limit ?
arun adalja
1 decade ago
rbi s circular does not help depositors it helps only to bank officers who forgot to enter in the system and so ultimate loss to investors.why rbi is not increasing limit ?
1 decade ago
I am a sr. citizen whose only source of income is from int. on bank F.D.'s. In the begining of the F.Year 2013 my estimated interest income on F.D. was less than 2.5 lacs. However some F.D's matured & reinvested in the same bank at slightly higher rate of interest.
Total interest income exceeded 2.5 lacs in Feb. 14.Inspite of the submissin of 15H in the begining of the Year, bank deducted TDS on the full interest income.

Should they not deduct TDS on int. amount exceding Rs. 2.5 lacs? I have also invested some amount in NSC in the F.year.
Therefor there is no tax liabilty. Now for claiming this refund I shall have to file returns & wait for one Year to get back the money.
What is the remedy? Why can't I.Tax dept. make a rule that in case of Sr. Citizens TDS shall be deducted only on int. income exceding 2.5 lacs . !!
1 decade ago
I once had a cummulative deposit on which they deducted taxes and did not even send me the TDS certificate. TDS certificate was with the bank's dispatch section after 3 years. I lost 2 years of TDS deducted as both these years the assessments were completed.
Dayananda Kamath k
Replied to Priya comment 1 decade ago
on cumulative deposits there is no tds many banks are advertising to open cumulative deposits that is rd dangling this provision. your bank has wrongly deducted tds on cd you can claim it back from the bank
1 decade ago
I Feel Banks do not bother about small depositors, they worry only for Large/Corporate Depositors, whereas there income arises mainly from the SMALL DEPOSITORS, whereas large depositors give deposits, based on Auction unless otherwise interested.
Mun Mohan Kale
1 decade ago
Govt rules are idiotic. Senior citizens should be exempted from TDS on deposits. I have also suffered from this TDS. Bank could have rang me up & asked for form 15G/ 15H. I am 83 years & I am a super senior citizen. Afterall the amount is negligible but I had to pay auditor 500 rupees for filing the return. These politicians do not have the knowledge of the travails of IT payers. Why cab't the FM do away with TDS for senior citizens & pensioners.
1 decade ago
The problem is more acute in the case of Reinvested deposits, for which Forms 15G/H have already been submitted. He calculates and pays the Advance Tax before 15th March on the assumption that TDS is not deducted by the Bank by virtue of his submitting Form 15G/H and gets an unpleasant surprise when he gets the Form 16A by next May/June after close of the Financial Year; often this is not reflected in Form 26AS also due to the Bank quoting a wrong PAN NO or nor quoting PAN NO at all.
Replied to PATTABHI comment 1 decade ago
It is a suggestion if Banks do not have PAN then deduction of TDS is at higher rates (so no excuses here), so in the absence of PAN or 15G/H, the deduction should only be made with the consent
1 decade ago
WHAT AS A PROFESSIONAL I FEEL IS the Bank Manager and concerned staff should personally compensate for wrong deductions, then only in future these errors will not be repeated.
Free Helpline
Legal Credit