As it is the returns earned on bank deposits is not keeping pace with inflation. Besides, people face innumerable difficulties in getting the correct tax certificates to file tax returns

As you walk to the income-tax office in Bengaluru, you will pass by a big hoarding outside that reads, "TDS is not tedious, it is the easiest". And the message at the bottom reads: "Bharo tax mauj hai max".



But the reality is totally different. Tax deducted at source (TDS) is one of the most obnoxious provisions in the Indian income-tax system, which causes unbearable harassment to the common man, who even after paying the tax cannot sleep in peace. As it is, the high rate of inflation, rising oil and gas prices, and the growing cost of living, have created a deep dent in savings. This is made worse by the tax laws, which have become regressive, on account of the failure of the government to bring inflation under control.

There are about 500 million people in the country with bank accounts, and at least half of these account holders may have term deposits in some form or other. All these depositors have been getting a negative real rate of return on their savings, due to the growing rate of inflation year after year. Though deposit rates have moved up, inflation has been rising much faster, eclipsing the slower growth in deposit rates. And as if to add insult to injury, the interest received on these bank deposits is subject to income-tax, which is deducted at source by the banks. This is putting an additional burden on the middle class in our country, making it totally unviable to invest in bank deposits. As a result it is driving the common man to invest in unreliable ponzi and money-multiplier schemes, which are thriving at the cost of the not-so-financially-literate middle class and lower middle class, who together constituted about half the country's population.

As if this agony is not enough,  all these bank depositors who honestly pay taxes on the interest received from banks on their deposits, have been suffering in silence for the past several years, because, day by day, they find it difficult to get TDS certificates from these banks, who simply do not bother to give the certificates on time. In the month of July that just gone by, people have been running from pillar to post to get TDS certificates from their banks, to enable them to file their returns on time.

Though it is mandatory for banks to send the TDS certificates to depositors every quarter, without their asking, barring a few banks, none of the major banks bother to send these certificates on their own. And very few bank customers are lucky enough to get the TDS certificates on their first visit to the branch. Because, more often than not, the counter clerks plead helplessness, either because computers are hanging, or they are not printing out certificates due to a software problem. And when you visit for the second time, it is more likely that the person who asked you to come the next day would be on leave and you will be forced to make a third visit to the branch to get what is rightly due to you.  

Another problem depositors' face is that different banks follow different systems of payment of interest and deduction of tax at source. Many banks just credit the net amount of interest after deducting tax, due to which the depositor will not know the amount of tax deducted till the TDS certificate is issued by the bank. In the case of cumulative deposits, where interest gets compounded with the principal, the depositor has no way of knowing the amount of tax deducted till he obtains a TDS certificate from the bank at the end of the year. And if you happen to withdraw the deposit before maturity to meet any emergency, the bank will recover from you some part of the interest already paid to you as penalty for premature withdrawal,  but will not refund any part of tax already deducted from you account.

Ironically, the agony has increased considerably since the introduction of computerisation in banks and income-tax offices. When the banks were operating in a manual environment, handwritten certificates issued by banks were accepted by income-tax offices at their face value and it was possible, though with considerable delay, to get a refund of excess tax paid, based on these certificates. But today, the income-tax department does not rely upon the TDS certificates issued by banks, unless they match with the information contained in the form number 26AS on the income-tax website. And it has been the general experience of bank customers that the TDS certificates issued by banks invariably do not match the 26AS statement of the income-tax department, as it is said that most of the banks outsource this work to private agencies that are not under their control, causing further problems for depositors. This has resulted in income-tax officers issuing demand notices even when appropriate tax has been deducted by the banks.

It is a no-win situation for the common man, as banks put the blame for the mismatch squarely on computers or external agencies, and thus a large number of depositors are left high and dry with no where to go to find a solution to this nagging problem of TDS.