Co-operative banks will be required to deduct TDS if the interest they pay to a depositor, who is also a member (shareholder) of these banks, exceeds ₹10,000 in a financial year.

In this regard, the Finance Bill 2015-16 has proposed an amendment to Section 194A of the Income Tax Act (relating to interest other than ‘interest on securities’).

According to the amendment, the tax deducted at source (TDS) will not apply to income credited or paid by a co-operative society (“other than a co-operative bank”) to a member or to any other co-operative society.

What this means is that while co-operative societies continue to be exempt from TDS, co-operative banks will have to deduct TDS on the interest they pay on deposits. This provision will be made effective from June 1, 2015.

According to Satish Marathe, President, Sahakar Bharati, this move will cause unnecessary hassles to the small depositor-members of co-operative banks.

“Suppose a depositor-member of a co-operative bank earns, say, ₹20,000 interest in a year from a fixed deposit but does not have any taxable income.

“Now if the member does not have a PAN (Permanent Account Number) but submits either Form 15G or Form 15H for non-deduction of tax, such a declaration will not be acted upon by the bank.

So, tax will be deducted at source on the interest earned from the fixed deposit,” he explained.

Marathe said the TDS proposal in the Finance Bill will cause hardship to depositors. Besides, it will also increase the administrative burden on the tax authorities for granting refunds. (The Hindu Business)