Banks Cannot Ignore RBI Circulars And Hide Behind Software Glitches – NCDRC Slams Indian Bank For Deducting TDS Despite Form 15G Submission

“It Is A Blatant Deficiency In Service” –  In a landmark decision protecting the rights of bank customers, the National Consumer Disputes Redressal Commission (NCDRC) delivered a scathing verdict against Indian Bank for wrongfully deducting TDS despite the submission of Form 15G by the customer, holding that such conduct amounts to clear deficiency in service under the Consumer Protection Act, 2019.

Delivering the verdict, the Bench comprising Mr. A.P. Sahi (President) and Mr. Bharatkumar Pandya (Member) categorically declared, “The Bank’s plea that TDS was deducted due to an automatic software-triggered process cannot override the binding directives issued by the Reserve Bank of India. Such a plea is not only unacceptable but borders on an abdication of responsibility.”

The case arose when the petitioner, L. Jayageetha, maintained seven term deposits with the respondent bank and had duly submitted Form 15G on 12.04.2017, declaring her income was below the taxable limit. Despite this, the bank proceeded to deduct ₹15,766 as TDS, citing automated processes as the reason and suggested that the customer should recover it by filing an income tax return.

Calling this defense frivolous, the Commission noted, “Once the bank acknowledges receipt of Form 15G, it cannot arbitrarily proceed to deduct tax at source. To do so is to commit a direct breach of the RBI Master Circular dated 01.07.2014, which specifically mandates banks not to deduct TDS where Form 15G is duly submitted.”

The bank attempted to shield itself behind a technicality, arguing that some columns in Form 15G were left blank and that the TDS deduction was a consequence of system-generated rules triggered by income thresholds. The NCDRC was quick to dismiss this argument, holding, “If the bank indeed found the form defective, the basic principles of customer service and accountability demanded that it inform the customer. Silent non-action followed by arbitrary TDS deduction reflects a gross failure of service standards.”

Referring to the RBI’s Master Circular, the Bench quoted emphatically, “With a view to protect the interest of depositors and to render better customer service, banks are advised to give an acknowledgment at the time of receipt of Form 15-G/15-H. This will help in building a system of accountability and customers will not be put to inconvenience due to any omission on part of the banks.” The Commission made it clear that this directive from the RBI is not an advisory but a binding obligation.

Rejecting the line of reasoning adopted by both the District Forum and the State Commission, the NCDRC observed, “Both the fora below miserably failed to grasp the real controversy. They overlooked the binding nature of the RBI Circular and erroneously proceeded on the flawed presumption that since TDS involves tax matters, the consumer fora lack jurisdiction.”

Addressing this misapprehension, the Commission clarified, “While the determination of tax liability is indeed the domain of the Income Tax Department, the act of wrongful deduction in violation of RBI norms is squarely a deficiency in banking service. The consumer cannot be forced to suffer because of the bank’s failure to adhere to regulatory guidelines.”

The NCDRC noted with particular concern that the bank did not raise any objection about the alleged incompleteness of Form 15G at the time of submission, nor during the multiple representations made by the complainant immediately after noticing the deduction. Instead, the bank attempted to justify its action two years later through a reply obtained from the Income Tax Department. The Commission remarked with disapproval, “Such post-facto justifications do not absolve the bank. The onus of processing Form 15G correctly lies squarely on the bank at the time of deposit handling, not years later.”

Observing the financial impact on the complainant, the Commission stated, “The entire premise of Form 15G is to relieve senior citizens and small depositors from the cumbersome process of tax filings where their income does not cross taxable limits. For the bank to deduct TDS despite acknowledging Form 15G defeats the very purpose of this mechanism.”

Setting aside the orders of the District Forum and the State Commission, the NCDRC decisively ruled, “This is a textbook case of deficiency in service. The bank cannot abdicate its duty to adhere to regulatory mandates and shift the burden of correction onto the consumer under the guise of tax processes.”

Passing its final order, the Commission directed the bank to refund the sum of ₹15,766 along with interest at the rate of 9% per annum from 05.10.2017, the date of the complainant’s first written objection, until the actual date of payment. This, however, is subject to the complainant filing an affidavit confirming that she has not already received the refund from the Income Tax Department.

The Commission made it clear that, “If the refund has already been claimed or the affidavit is not filed, the bank must pay ₹5,000 as compensation for the inconvenience caused, besides ₹5,000 towards litigation costs.” The compliance period was set at three months from the date of order.

Delivering a strong message to the banking industry, the Commission concluded with a stern observation: “Banking services cannot operate in ignorance or defiance of RBI’s express mandates. Consumers are entitled not only to safe custody of their money but also to fair, compliant, and accountable service.”

This ruling is a reminder that regulatory compliance is not optional for banks and that consumer forums are not powerless in the face of bureaucratic excuses when it comes to protecting consumers from wrongful actions by financial institutions.

Date of Decision: 23 May 2025