TAX LAWS APPLICABLE IN BANKING OPERATIONS :

Like any other organization, Banks and Financial Institutions are also required to ensure that all the applicable provisions of the various tax laws (Income Tax Act, Finance Act, etc.) are adhered to.

Apart from the role of employer and beneficiary of services, banks are expected to pay tax on the interest payable to the customers as per the directives of authorities like, TDS on interest payable on fixed deposits, NRO deposits, etc. Further, income of the bank from investment like dealing in securities, also attract provisions of TDS.

In view of the above banks should ensure that:

(i) calculation of taxes and recovery of such taxes are correctly handled.

(ii) deducted taxes are paid to the concerned authorities within the prescribed due dates without fail. This is one of the crucial requirement non-compliance of which attract penalty.

(iii) Banks are required to keep proper records of tax collection and remittance.

(iv) Banks are required to report the details to the authorities within a specific time frame. The reporting requirement would also include quarterly reporting as well as submission of half yearly and/or annual statements.

(v) At the time of payment of salary to employees banks should deduct applicable tax at source and arrange to issue the necessary certificates for TDS on form 16 to employees. For other deductions like payment to contractors etc., TDS on form 16A should be issued to the service providers. These TDS (16 and 16A forms) would serve (i) as evidence of tax deducted at source (ii) as a record (iii) enable the employees and service providers/professionals to claim refund of tax.