15 Apr 2019 04:11am IST
Neetant D Sinai Shirodkar
Have you left behind a trail of unused savings bank accounts when you changed jobs? Or have multiple bank accounts with varying balances opened at different times that are now left unused as you transact through only one regular account? Many individuals don’t close bank accounts that they no longer need. If you have one such account here is what happens if you don’t close your savings or current accounts and why you need to keep a track.
Inactive and Dormant Account:
If you have a current or a savings bank account and have not done any transactions through it for more than 12 months, then it will be classified as an inactive account. And if you don’t do any transactions from a bank account for 24 months, then it will be classified as a dormant account. As per Reserve Bank of India (RBI) guidelines, an account becomes dormant if a customer does not initiate transactions such as withdrawal of cash at a branch or automated teller machine (ATM), payment by cheque, transfer of funds through Internet banking, phone banking or ATMs.
In short when banks use the term ‘transaction’, only transactions initiated by you (transactions through debit card, net banking) or a third party are taken into account. Bank-initiated transactions, such as interest on savings balance or penalties and service charges debited by your bank are not considered while classifying your account as inactive or dormant account. However, if you get dividend on shares or the proceeds of your fixed deposit (FD) in your savings account, then it will be considered as a customer induced transaction. Hence, the account will be treated as operative so long as the dividend or FD proceeds is credited to bank account. It will be treated as inoperative only after two years from the date of the last credit entry of dividend or FD, provided there is no other customer induced transaction.
Restriction on Inactive and
Once your account is tagged as inactive, you won’t be able to request for a debit card or cheque book, use Internet banking or get user identity (ID) and password. And when it becomes a dormant account, besides the restrictions applicable on an inactive account, you won’t be allowed to change your address, contact number, email address, and do transactions through ATMs, Internet and phone banking.
Why do banks classify accounts into inactive and dormant account?
The main purpose of reclassifying the accounts is to reduce the risk of fraud in your account. By reclassifying the accounts, banks warn their staff about the potential risk involved and carry out due diligence before allowing any fresh transaction through them.
Banks are required to inform you at least three months before the reclassification of your account. They are also required to inform you about the procedure for re-activation of your account. If you chose to reply to the bank and provide the reasons for the non-operation of your account, your account will continue to be considered as an operative account for another year. However, if you still don’t transact through your account during the extended period, your account will be classified as dormant/inoperative account at the end of the extended period. However, you will continue to receive interest on your savings account balance even after your account gets reclassified as a dormant or inactive account.
One can activate an inactive bank account by doing basic banking activities such as cash withdrawal or deposit, funds transfer or bill payment. Some banks give you the option to request for activation of your account through Internet banking. You can even call the customer care or contact the bank branch. In case of a dormant account, you may have to submit a written request along with identity proof. Your signature may also be verified to activate the account.
Disclosure in tax returns:
From a tax point of view, remember that this year, while filing your income tax return, you must give details of all your savings and current accounts including dormant and inactive ones. According to income tax laws, details of all bank accounts, excluding those that have been non-operational for over three years, held in India at any time during the previous year should be provided in the return.
As inactive or dormant bank accounts are a result of not closing the accounts, the first step towards avoiding the problem of inactive or dormant bank accounts is to close the accounts that you do not need. In case you wish to continue with a lesser used bank account, try to make one deposit or withdrawal every year. Other easier alternatives would be to use those accounts for routing investments in SIPs or ULIPs and/or for receiving bonuses and dividends from mutual funds, shares, or insurance products.