Bangladesh Bank has cautioned all scheduled banks to accurately deduct tax deducted at source (TDS) from interest and profit paid on deposits and deposit them into the government treasury within prescribed deadlines.
The Banking Regulation and Policy Department-1 of Bangladesh Bank issued a circular letter on Monday, instructing the managing directors and chief executive officers of all operational banks to strictly comply with source tax regulations under the Income Tax Act, 2023.
The central bank noted recent irregularities where banks either failed to deduct TDS at the appropriate rate or delayed transferring the collected tax into the government exchequer.
Such discrepancies have created complexities during tax audits and adjustments, while also depriving the government of legitimate tax revenue.
Under Section 102 of the Income Tax Act, 2023, banks must deduct TDS on interest or profits paid across all savings, fixed, term, or other deposit accounts based on the account holder's category.
Under Section 142 of the same Act, if an account holder fails to provide Proof of Submission of Return (PSR), the bank must deduct or collect TDS at a rate 50% higher than the standard rate.
In line with Rule 8 of the Income Tax Rules, 2023, tax collected between July and May must be deposited into the government treasury within two weeks following the end of the collection month.
For tax collected in the first 20 days of June, the transfer must occur within seven days; for any tax deducted during the rest of June, it must be deposited the very next day.
Bangladesh Bank explicitly prohibited banks from retaining collected source taxes in general ledgers or temporary accounts beyond these stipulated limits.
Banks were also mandated to maintain meticulous records of all TDS deductions and submit copies of returns and deposit challans to the relevant tax authorities.
The directive was issued under powers conferred by Section 45 of the Bank Company Act, 1991.
