TDS on co-op bank deposits set to go

MUMBAI: Even as various co-operative banks take the flak for their shady deals and reckless operations, the government is set to extend a relief to the segment.

Finance minister Yashwant Sinha has indicated that the deposits of the members of the co-operative banks across the country will not be subject to tax deducted at source (TDS).

Mr Sinha told this at a meeting with the members of the National Federation of Urban Co-operative Banks in New Delhi on Saturday. At present, interest income of Rs 5,000 per annum attracts 10 per cent tax.

Speaking to ET, D Krishna, chief executive of the federation said, “Finance minister has made it clear that TDS will not be applicable to the members of the co-operative banks.�

Mr Krishna added that Central Board of Direct Taxes (CBDT) will soon issue a circular on clearance given by the finance ministry.

At present, the TDS on deposits for members of co-operative banks vary from one city to another. Even though the Income-Tax Act has a provision that interest earnings by members of a co-operative bank are exempted from TDS, I-T commissioners insist on TDS. The CBDT circular is expected to result in uniform rules on TDS for co-operative banks.

This will place co-operative banks at a competitive advantage to public sector and private banks.

Banking officials feel that reputed and large co-operative banks will be able to mobilise huge quantum of low cost deposits.

All borrowers of co-operative banks have to become a member of the bank to get the loan. But once the TDS relief comes even the non-borrowers would be encouraged to acquire some shares of a co-operative bank to avail the tax benefit.

As a result, co-operative banks would not be required to continue with the current practice of offering higher returns on the deposits. The minimum lending rates have already been deregulated for co-operative banks. Earlier co-operative banks could not lend below 12 per cent even to their prime customers. The exemption of TDS will enable these banks to mobilise low cost deposits and at the same time deploy them at competitive rates.