Deposit holders in Banks, qualifying for exemption from tax, need to submit declaration forms to their respective Bank Branches, to obtain exemption. Under the guidelines issued by the Department of Inland Revenue, the following provisions apply.

1. The current Withholding Tax rate is 10% of the interest paid

2. An individual or a charitable institution making a declaration in writing to the branch of the Bank that the assessable income (total income from all sources, including interest, dividends etc. but excluding exempt income) for that year of assessment (year ending 31st March) does not exceed Rs. 300,000/-, a tax deduction will not be made from interest for that year of assessment. Where it is declared by an individual that the assessable income exceeds Rs. 300,000/- p.a. but does not exceed Rs. 600,000/- p.a. tax will be deducted at 2.5% from such interest for that year of assessment. The upper limit of Rs.600,000/- is to be increased to Rs.1,000,000/- with effect from 1st April,2009.

   Since it is mandatory for depositors to submit a written declaration to obtain exemption under item 2 above, depositors qualifying for such exemption should contact their Branch Managers and obtain a declaration form if not received already, which should be submitted to the Branch to avoid any tax being recovered. Such declarations will be made available for inspection when required by Officers of the Inland Revenue Department. Where the assessable income of the depositor is over Rs.600,000/- p.a. (Rs.1,000,000/- fro 01.04.2009) ,WHT of 10% will be deducted and no declaration needs to be submitted. (Specimen declaration form given below may be downloaded for the purpose)

   It is extremely important to understand that a declaration form needs to be submitted to the Bank, not only at the time an interest bearing deposit account is opened but if such deposit continues to be maintained in the Bank, it is also mandatory that a fresh declaration is submitted to reach the Bank ideally by the end of 31st March each year as long as the deposit account is maintained in the Bank and the deposit holder continues to be eligible for exemption from tax. Failure to do so may result in the Bank recovering Withholding Tax on interest from April of a particular year, even though a declaration had been submitted for the previous year of assessment, since the validity of a declaration expires at the end of March each year.

3. Interest on any one savings account maintained by an individual or a charitable institution is exempt from withholding tax if such interest is less than Rs. 5,000/- for a month. Where there are more than one savings account under the same name, the customer may define the account for the purpose of exemption. Interest on all other savings account will be liable for tax.

4. Interest on any one savings account maintained by an individual or a charitable institution is exempt from withholding tax if such interest is less than Rs. 5,000/- for a month. Where there are more than one savings account under the same name, the customer may define the account for the purpose of exemption. Interest on all other savings account will be liable for tax.