BB warns banks to deposit tax deducted from deposit interest on time
Banks’ failure to properly follow the legally prescribed tax rates and rules has created problems in subsequent tax adjustments and audits, the central bank said.
Bangladesh Bank has instructed banks to ensure accurate deduction of withholding tax on interest or profit paid against deposits and deposit the deducted amount with the government treasury within the prescribed deadlines.
The Banking Regulation and Policy Department-1 (BRPD-1) issued a circular letter today (10 August), saying it had recently found irregularities at several banks in deducting withholding tax on deposit interest or profit and depositing the amounts with the treasury on time.
Banks' failure to properly follow the legally prescribed tax rates and rules has created problems in subsequent tax adjustments and audits, the central bank said. In some cases, incorrect tax deductions are also causing revenue losses for the government.
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Under Section 102 of the Income Tax Act, 2023, banks must deduct withholding tax at the applicable rate based on the type of recipient from interest or profit paid on savings, fixed, term or other deposits.
Under Section 142 of the Act, if a taxpayer fails to produce a Proof of Submission of Return (PSR) when tax is deducted or collected, the bank must deduct or collect tax at a rate 50% higher than the applicable rate.
Treasury deposit deadlines
Bangladesh Bank instructed banks to deposit deducted or collected withholding tax with the government treasury within the deadlines set by the Withholding Tax Rules, 2023.
For tax deducted or collected in any month from July to May of a fiscal year, the amount must be deposited within two weeks after the end of that month.
For deductions or collections made between 1 and 20 June, the amount must be deposited within seven days of the deduction or collection. For deductions or collections made after 20 June, the amount must be deposited the following day.
Separate records required
The central bank said deducted withholding tax must not be kept in a general ledger or any other account beyond the prescribed deadline. Banks must ensure that funds are deposited with the treasury within the stipulated period.
Banks must also properly preserve records of withholding tax deductions and ensure that required statements and copies of challans are submitted to the relevant authorities.
The central bank further instructed banks to comply with all other applicable provisions of the Income Tax Act, 2023, and the Withholding Tax Rules, 2023, concerning tax deduction and treasury deposits.
The circular was issued under powers granted by Section 45 of the Bank Companies Act, 1991. It was signed by Gazi Md Mahfuzul Islam, director of Bangladesh Bank's BRPD-1 department.
