Bangladesh Bank Orders Commercial Banks to Strict Compliance on Tax Deduction

Central bank authorities in Bangladesh have issued a stern warning to all scheduled commercial banks operating across the country, instructing them to strictly adhere to statutory tax deduction rules on interest and profit payments on customer deposits and to remit the deducted revenue to the national treasury without delay.

The directive was formally issued on Monday, 10 August, through a circular released by the Banking Regulation and Policy Department-1 of Bangladesh Bank. Addressed to the managing directors and chief executive officers of all scheduled banks, the instruction comes after financial regulators identified widespread errors, omissions, and compliance lapses in how banks deduct tax at source under the Income Tax Act, 2023.

According to the central bank, inconsistent application of tax rates by commercial banks has created severe accounting discrepancies during subsequent tax audits and reconciliation exercises. More critically, failure to deduct the correct amounts or store the funds properly has led to significant revenue losses for the exchequer.

Key Provisions Under the Income Tax Act, 2023

To eliminate administrative errors, Bangladesh Bank highlighted specific legal obligations under Section 102 of the Income Tax Act, 2023. The clause mandates that banks must deduct tax at source at the applicable rate on all interest or profit payments yielded from savings deposits, fixed deposits, term deposits, or any other deposit schemes, based on the tax status of the recipient.

The central bank also reiterated Section 142 of the same Act, which imposes a sharp penalty on taxpayers who fail to present proof of filing their annual tax returns. In such instances, banks are legally required to increase the rate of source tax deduction or collection by 50 per cent above the standard applicable rate.

“Tax deducted at source by banks can under no circumstances be retained in general ledgers or intermediate accounts beyond the statutory limits. Banks must ensure accurate record-keeping, maintain proper documentation, and submit required statements alongside treasury chalan copies to the relevant authorities.”

— Bangladesh Bank Directive

Timelines for Remitting Deducted Revenue to the Treasury

Under Rule 8 of the Income Tax Rules, 2023, the central bank laid down strict, mandatory schedules for transferring all collected taxes into the government treasury to prevent institutions from holding public revenue for extended periods:

• July to May Operations: For any tax deducted or collected between July and May of a fiscal year, the funds must be deposited into the treasury within two weeks following the end of the month in which the deduction occurred.

• Early June Operations: For tax deducted or collected between 1 June and 20 June, the money must be remitted to the treasury within seven days of the deduction date.

• Late June Operations: For tax deducted or collected on any remaining days in June, banks must transfer the funds to the treasury on the very next working day.

Central bank officials emphasized that funds withheld at source must not be parked in general ledger accounts or internal suspense accounts beyond these explicit deadlines. Exercising powers granted under Section 45 of the Bank Company Act, 1991, Bangladesh Bank warned that failure to comply with these tax regulations will invite regulatory scrutiny and administrative enforcement.