Co-op banks in Kerala directed to pay income tax for withdrawing cash above Rs one crore

Kozhikode: Service cooperative banks in Kerala will have to pay income tax at the rate of 2 per cent for cash withdrawals above Rs one crore, according to a notice served on them by the Kerala Bank. The move has landed over 1,600 service cooperative banks in the state in a crisis.

Cooperative banks deal with cash regularly as they distribute social welfare pensions, Kerala State Road Transport Corporation (KSRTC) pension and other government scheme payments. In fact, most cooperative banks pay around Rs four crore to beneficiaries every year. This amount is withdrawn from Kerala Bank. In addition, they withdraw money for day-to-day operations. As a result, the income tax amount would come to over Rs 10 lakh, which would deal a severe blow to their finances, according to cooperative bank authorities.

The Income Tax Department had recently sent a notice to Kerala Bank over its failure to collect tax from cooperative banks during cash withdrawals. Following which, the Kerala Bank served the notice on service cooperative banks informing them that the tax amount would be debited from their accounts in the Kerala Bank and paid to the Income Tax Department.

Even though service cooperative banks were brought under the Income Tax umbrella in 2019, it is now that tax is being levied on them. Incidentally, some service cooperative banks have secured a stay on the tax collection from courts.

Till last year, cash was paid directly from the state government’s Treasury to the service cooperative banks. Presently, money is transferred from the Treasury to Kerala Bank, from where service cooperative banks withdraw the necessary cash. To avoid payment of income tax while taking cash from Kerala Bank, service cooperative banks have urged the state government to pay the cash directly to them from Treasury again.