Deposit Interest Retention Tax

The Deposit Interest Retention Tax or DIRT is a type of a tax which is imposed on the interest earned on bank account and it is applicable in the Republic of Ireland.

The Deposit Interest Retention Tax was introduced in the year 1980. The income in the Republic of Ireland which may be from any source is applicable for taxation. The major problem was that a big part of the people were not disclosing their proper income and evading tax. The Department of Taxation under the government of the Republic of Ireland introduced new reforms which mentioned the deduction of tax at the source of the income.

With the introduction of the concept of pay as you earn, the Republic of Ireland went through its first tax withholding. The concept was accused of being controversial because the tax was deducted at the source. The concept was also accused of discouraging savings in the families falling in the low income group as they do not fall under the category of taxation but because of the Deposit Interest Retention Tax even they have to pay tax.

The Deposit Interest Retention Tax or DIRT is usually deducted at the source of the income which comes from the savings institute and the commercial banks for the government. The rate at which the Deposit Interest Retention Tax is deducted is 20% on all income pertaining to interest. The people who fall under the category of senior citizen and incapable of working are exempted from the income tax slab can reclaim deposit interest retention tax with the necessary official procedures.

In the decade of the 90s a huge problem pertaining to deposit interest retention tax cropped up in the Republic of Ireland. An enormous amount of non payment of tax pertaining to deposit interest retention tax was discovered. Many of the wealthy businessmen in Ireland were actually evading the deposit interest retention tax by establishing secret bank accounts in other countries and by suppressing information about the amount of taxable income. Several commercial banks evoked a major part of the populace to set up false non resident accounts because they can exempt tax under the restrictions on double taxation. In order to discourage and stop such kind of activities, the government of the Republic of Ireland has taken several steps such as heavy fines charged on the offender but the banks who have played an encouraging role are not punished at all.