Banks continue to reel under operational difficulties while complying with surcharge at varying rates for tax deduction at source.

Banks have been pitching for a uniform rate of surcharge for payments made to all non-corporate payees -- either nil or 2.5 per cent -- replacing the multiple rates.

But the provision in the Finance Act 2003 puts the onus on banks to ascertain the 'total interest paid or likely to be paid' to each payee during the financial year to decide the surcharge rates applicable. Any error in this estimation could result in an excess or under-deduction of tax.

The tax to be deducted at source is based on whether the payee is a corporate or a non-corporate entity.

However, when it comes to differential surcharge rates, even among the non-corporate tax payees, banks have to ascertain the 'status' of the payee.

It could be a co-operative society or an individual, Hindu undivided family (HUF), association of persons (AOP) and body of individuals (BOI) where aggregate payments which are subject to TDS exceed Rs 8.5 lakh (Rs 85,000).

There could be a third category too where aggregate payments are up to Rs 8.5 lakh.

Currently, in the case of every individual, HUF, AOP and BOI, tax deduction is required to be made as per the rates specified plus surcharge of 10 per cent where the income or aggregate of such income paid exceeds Rs 8.5 lakh. If the income is less than Rs 8.5 lakh, there is no surcharge.

In case of every company, co-operative society, partnership firm and local authority, tax deduction is required to be made at the specified rates plus surcharge calculated at 2.5 per cent of such rate.