Seeking Modification in Aggregation Rule 114E

Under the Aggregation Rule 114E for reporting under SFT-005 time-deposits by banks in Form 26AS of the depositors, banks are required to attribute the aggregate deposit of all the holders to each of the deposit holders. Except where clubbing provisions apply, the interest income from an FD is taxed in the hands of the first holder only. Therefore, the aggregation rule seems to be irrational, misleading and counter-productive. It does not give the IT department a clear picture of deposits in relation to income, thereby obscuring the purpose behind SFT disclosures. Strangely, the PANs of the deposit holders are not required to be reported.

The aggregation rule should be modified so that banks are required to report separately in Form 26AS of a person, the FDs made by the person as first holder and as second or third holder. This will present a clear picture and IT department will not have to seek clarifications from tax-payers and the tax-payers will not have to waste time and effort in giving clarifications.

Aggregation Rule 114E

Aggregation rule needs to be applied for specified transaction types to identify transactions/persons/accounts which are reportable. Rule 1 14E specifies that the reporting person shall, while aggregating the amounts for determining the threshold amount for reporting in respect of any person –

(a) take into account all the accounts of the same nature maintained in respect of that person during the financial year;

(b) aggregate all the transactions of the same nature recorded in respect of that person during the financial year;

(c) attribute the entire value of the transaction or the aggregated value of all the transactions to all the persons, in a case where the account is maintained or transaction is recorded in the name of more than one person;

The aggregation rule is applicable for all transaction types except SFT- 012 (Purchase or sale of immovable property) and SFT- 013 (Cash payment for goods and services).

Ashok, you’ve raised a very valid and practical concern regarding Rule 114E and its aggregation approach for reporting fixed deposits in Form 26AS under SFT-005.

Key Issues You Highlighted:

The rule aggregates the total deposits across all holders and attributes the full aggregate amount to each holder, rather than apportioning it based on the actual share of each depositor.
Interest income from FDs is taxed only in the hands of the first holder, so attributing the entire amount to every holder leads to mismatch between reported deposits and taxable income.
PANs of deposit holders are not mandatory in reporting, which complicates clear tracking.
This causes confusion for the IT department and unnecessary clarifications from taxpayers.

Suggested Modification (Your Proposal)

Banks should report separately for each depositor their FDs where they are the first holder and where they are the second or third holder.
This would ensure the Form 26AS data matches the actual income tax liability better.
It would reduce the burden of clarifications on taxpayers and simplify compliance and enforcement for IT authorities.

Practical Implications and Benefits

Clearer linkage of deposits and income for the tax authorities.
Avoids inflated deposit reporting for secondary holders who do not have corresponding income tax liability on interest.
Simplifies dispute resolution and reduces taxpayer queries related to mismatches in Form 26AS.

Current Position

As per Rule 114E, the full aggregate amount is attributed to all holders jointly.
No distinction is made based on order of holders (1st, 2nd, etc.).
PAN reporting norms for joint holders are limited or unclear.

What You Can Do

Consider submitting this suggestion as formal feedback to the CBDT or through stakeholder consultations.
Keep an eye on notifications or circulars from CBDT for any updates/modifications in SFT reporting rules.
Advocate for more transparent reporting norms via professional bodies like ICAI or industry forums.