The Income Tax department has claimed that RBI has failed to deduct tax at source since July 2007 on payments amounting to over Rs800 crore. The department has stated that RBI had made payments to some government banks as “agency commission” but failed to deduct TDS on it as per section 194H of the Income Tax Act. The commission was paid for banking and government business conducted by these banks on behalf of the RBI.
RBI on the other hand stated that as per a circular issued by the Central Board of Direct Taxes (CBDT) in 2003, no TDS was required to be deducted on turnover commission paid by RBI to agency banks. On this the I-T department contended that agency commission and turnover commission are different and the circular was in force only until 2006.
The I-T department is now considering levying 100% penalty (on the TDS amount) on the RBI for not complying with TDS laws. However the department will not ask the RBI to pay the TDS because it will recover that from the banks.