State Bank of India has admitted that a human error in setting parameter in its system led to deduction of income tax or TDS @40% for FY13 from accounts of its special term deposit holders. SBI is in the process rectifying the issue, but not all depositors will see their entries reversed as yet. How is a common saver supposed to know such deductions from his ‘trusted’ bank and whether there are any costs attached?
State Bank of India (SBI), the country’s largest lender, shocked a number of its customers by lopping off income tax at the rate of 40% as tax deducted at source (TDS) for FY2012-13. When several account holders, of its special term deposit scheme, (these are deposits created automatically by system based on the threshold amount set by depositors in their savings bank-SB plus accounts-multi option deposit or MOD) complained, the lender restored the amount. However, there are still 6,118 account holders who, according to SBI, will have to bear “notional loss of interest”.
According to SBI, the impact of this erroneous parameter change (esentially a human error in setting parameter) was limited to only one term deposit product, special term deposits-multi option deposit (STDR-MOD), out of its around 2,358 such products.
In an email reply, a deputy general manager at SBI’s IT-core banking (business operations and support) division, said, “We observed on 2nd April that for a particular type of special term deposits excess amounts have been deducted as Income Tax. As we had not made any software changes, it took us some time to locate the source of error. Due to an inadvertent parameter change for the particular product in the system, TDS was deducted at a higher rate. On detection of the error, immediate steps were taken to systemically restore the excess TDS in all the concerned accounts, except the accounts, where it was technically not feasible to restore credit into the original account. In case of all such accounts, credit of amount involved has been afforded to the linked SB accounts of the customer concerned. The entire rectification exercise was completed by 12 April 2013”.
While SBI admitted to have credited back the excess TDS into customer’s savings accounts, it has neither restored the same in the fixed deposit (FD) accounts affected nor compensated such account holders for the loss of interest.
"As a step to minimise the inconvenience and interest loss to the affected customers, we are in the process of issuing similar STDR-MOD accounts for each of these accounts, with the excess TDS amount. This process is expected to be completed by Saturday," SBI said in an email.
Due to the wrong deduction of TDS, several account holders of the state-run lender received lower interest rate on their deposits. Some even had to pay penalty for pre-mature withdrawals (especially FDs that were less than seven days old). The wrongly debited money was credited into their savings account several days later. Therefore, the customers
(i) got lower rate of interest on fixed deposits,
(ii) paid penalty for pre-mature withdrawal,
(iii) no interest was paid between amount debited from fixed deposits and amount credited in savings account, and
(iv) amount credited in savings bank account earns a lower rate of interest, that too from the day such amount was reversed.
Apparently, not all depositors will find their entries reversed or rectified due to technical reasons. When asked if unfortunate depositors will be made good on the losses, SBI said, “Our branches are being suitably instructed to make good these notional losses by manual interest payment/adjustment, which will be ensured with follow up from our end.”
Furthermore, he said, “There has been no instance where the interest has been paid on a fixed deposit at a lower rate. Since the incident was not in the nature of premature withdrawal, no penalty was levied by the system.”
Whether other banks have audited their IT systems to ensure that this, or for that matter any grave error, does not happen, is not known. SBI admits that that it will take time to rectify the error because it is not familiar with it. The deputy general manager said, “The process being carried out is not a laid down process, hence it is taking some time.”
This is not the first time that the TDS issue has come to spotlight. Many a times, banks are found failing to file tax deducted from account holders leaving individuals and companies with severe penalties. They harass depositors over TDS certificates, especially senior depositors, who have to run from pillar to post to get several TDS certificates if they have multiple accounts.
Moneylife Foundation had earlier sent a memorandum on TDS to the Reserve Bank of India (RBI) and finance ministry, to do away with the painstaking system of obtaining many forms, amongst other things including shifting of responsibilities to banks to ensure proper TDS documentation is obtained.
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The worst part of the situation is that IT dept. does not take an action against the erring entities (even when the offence is as serious as deducting the TDS but not depositing with govt.). The truth is that easier course for them too is to harass the individual taxpayer.
Thus, most of the depositors can not furnish Form 15G. Like wise, most of the senior citizens, for whom the limit is Rs.2.5 lacs instead of Rs.2 lacs, who under the age of 80 years.
FM must scrap this TDS on Bank Fixed Deposits, because Banks are compelled to deduct TDS on Interest accrued every Quarter, even though such interest income has not been paid to the depositor!
As a result, GoI gets its TDS ahead of time, whereas the Depositor loses the benefit of interest on the TDS amount for the remaining life of the FD.
Why haven't depositors raised this issue of being cheated by this absurd interpretation of TDS by IT Dept of GoI?!
On the other hand, the TDS deduction system also has a glitch. It cannot ascertain the amount of interest accrued for a financial year for deposits that spans across financial years. In the case, it incorrectly calculates a higher amount of gross interest accrued.
I raised a stink with the SBI regarding this glitch but to no avail. Then I called up the Chartered Accountant after obtaining the number from the accounts executive in SBI and threatened them with consequences if they did not pass a reversal entry in the 26AC Tax deduction certificate at NSDL.
This time the SBI story has broken out because enough people have now realised the error and SBI is not bothered to correct the TDS software glitch.
http://nareshnayak.wordpress.com
Regards,
Thus, most of the depositors can not furnish Form 15G. Like wise, most of the senior citizens, for whom the limit is Rs.2.5 lacs instead of Rs.2 lacs, who under the age of 80 years. For those who are above 80 years, the limit is Rs.5 lacs.
One has to submit in duplicate for the AY 2014-15, now in advance for the current Financial year 2013-14, to be signed by the First name holder of the bond, if it is joint names. PAN is cumpulsory to submit the form, lest 20% on accrual interest is being deducted as TDS. If accrual inerest does not exceed rs.10,000 for FY, need not submit form, no TDS will be done. ( This ceiling is for each branch). However, the assessee has the liability to sum up all bank branches to arrive at basic exemption limit, and thus to whether to submit Form 15G/H
I had to get a Bank Of Baroda branch to rectify as much as 100% TDS from their 86+ customer of over 50 years who had all his savings parked in FDs in the same branch. At times FD interest would be credited 100%, at times none - excuse they had 'forgotten' to deduct TDS in the earlier credit!Their Officers and Manager were 'too busy' to meet the old man to clarify.
I had to accompany him and his daughter to the branch to tell them that they hold Form for which the client has a stamped acknowledgement. The refunded the TDS and issued the TDS certificate for the Tax deducted wrongly in the previous years belatedly.
I got them to promise no TDS deduction in future where the forms are submitted and TDS certificates will be issued to enable Tax returns to claim refund.
Under which provisions of the IT ACT [income tax] the deductive amt can be refunded by BoB? Cr. to the a/c held with the branch. IMPORTANT TO EXPLAIN!
No 'INTEREST CREDITED' AS AN ICAI MEMBER, FCA, HAVING AUDITED BANKS, you're telling this as 'fairy tale'.
IF SO AS A SO CALLED ACTIVIST WHAT PREVENTED YOU FROM BLASTING THIS ISSUE & HAULING UP ICAI AUDIT MEMBERS? THE BANK ITSELF!? IT'S STATUTORY AUDITORS!?
Regards,
Regards
BUT ABOVE ALL ,SUBMISSION OF 15G/H HAS NO MEANING UNLESS IT IS FEEDED IN COMPUTER .
TO OVER COME ANY OMMISSION/COMMISSION ,IT IS SUGGESTED THAT THERE MUST BE AN INSTANT SMS/E MAIL TO CUSTOMER , TO APPROACH BANK TO MAKE NECESSARY CRRECTION , AS THERE IS FEW DAYS GAP BETWEEN TDS DEDUCTION AND DEPOSIT OF SAME .
Regards,
CONTACT BR/BANK FOR REFUND .