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)