The income tax department on Thursday directed all Urban Cooperative Banks (UCBs) to clear their dues by December.

The UCBs are liable to pay the tax following recent amendment in the Income Tax (IT) Act. The new provision removed Section 80 P (4) from the Act under which UCBs had enjoyed income tax exemption till date. The amendment has made it mandatory for the UCBs to deposit advance tax on their profits.

Information regarding the new provision in the Act was given to UCB officials operating from the city at a meeting held at IT Bhawan on Thursday. The meeting was called by joint commissioner, income tax, range II, Meenakshi Singh. She said that barring primary agriculture credit societies and primary cooperative agriculture and rural development banks, all cooperative institutions would now have to pay income tax at the rate of 30 per cent on their profits. She asked the representatives of Urban Cooperative Banks to ensure that the banks paid income tax in advance by December 2006 for the financial year 2007-08.

The joint commissioner said that the government has decided to withdraw the exemption on the basis of the study carried out by the Directorate of Income Tax (research) on the revenue implication of deduction under section 80 P. The study, she said, revealed that revenue loss on account of allowing deduction to Urban Cooperative Banks amounted to Rs 872 crore in financial year 1999-2000 and Rs 982 core in 2000-01. Accordingly, the gross revenue loss in financial year 2004-05 was estimated at Rs 1,534 crore.

Bank representatives utilised the occasion to air their grievances. Representatives of UP Cooperative Bank said that their bank was not entitled to scheduled bank' status under Section 36. As a result the UP Cooperative Bank cannot deduct "provisions" such as bad debt etc for calculating its net income on which the tax is payable. This, they said, would leave the bank with little income for growth. Another USB representative said that the 30 per cent tax was too high which would eventually lead to closure of cooperative banks. Some felt that IT department should give some relaxation so that they can take the shelter of law courts.

However, IT officials said they cannot give any relaxation. "We are merely an implementing authority. Changes in the policy can be done only by the union finance ministry," said Vinod Kumar, Chief Commissioner of Income Tax (CCIT) I, Lucknow. He said that banks should pay the tax on time and later if government decides to give some relaxation, the amount paid would be reimbursed accordingly.

Commissioner of Income Tax (CIT) I, Anjani Kumar, said banks should also pay their fringe benefit tax on time and file their annual information reports. Senior IT officers pointed out that many cooperative banks do not provide details of depositors, who earn from fixed deposits, but do not pay taxes.