Dear Mr. Suresh Babu,
In my opinion the excess TDS deposited with the Tax Department can be adjusted against the TDS or any other tax liability under the Income-tax Act, 1961 during the same financial year.
However you need to file the revised return of TDS with the Tax Department. This will enable the Tax Department to give correct TDS credit to the customers on whose account excess TDS has been deposited. Accordingly the excess TDS deposited will be carried forward to the next quarter and can be adjusted against the TDS liability.
Adjustment may be made by you in the same customer’s account or it may be made independently. After making all the adjustment till the end of the financial year if there is excess TDS deposited with the Tax Department then it shall be claimed as refund.
The Tax Department has laid down following procedure for regulating refund of amounts paid in excess of tax deducted or deductible.
Circular: No. 285 [F. No. 275/77/79-IT(B)], dated 21-10-1980.
Procedure for regulating refund of amounts paid in excess of tax deducted and/or deductible.
1. The Board have been considering the manner of refunding the amount paid in excess of the tax deducted and/or deductible (whichever is more) under sections 192 to 194D of the Income-tax Act. The Board are advised that such excess payment can be refunded, independently of the Income-tax Act, to the person responsible for making such payment subject to necessary administrative safeguards.
2. In supersession of the earlier instruction on the subject, the following procedure is laid down to regulate the refund of such excess payments.
3. The excess payment would be the difference between the actual payment made by the deductor and the tax deducted at source or that deductible, whichever is more. This amount should be adjusted against the existing tax liability under any of the Direct Tax Acts. After meeting such liability the balance amount, if any, should be refunded to the assessee.
4. Where the tax is deducted at source and paid by the branch office of the assessee and the quarterly statement/annual return (in case of salaries) of tax deduction at source is filed by the branch, such branch office would be treated as a separate unit independent of the head office. After meeting any existing tax liability of such a branch, which would normally be in relation to the deduction of tax at source, the balance amount may be refunded to the said branch office. The Income-tax Officer, who will refund the amount, would be the one who receives the quarterly statement/annual return (in case of salaries) of tax deduction at source from that branch office and keeps record of the payments of tax deduction at source made by that branch.
5. The adjustment of refund against the existing tax liability should be made in accordance with the present procedure on the subject. A separate refund voucher to the extent of such liability under each of the direct taxes should be prepared by the Income-tax Officer in favour of the “income-tax department” and sent to you along with the challan of the appropriate type. The amount adjusted and the balance, if any, refunded would be debitable under the sub-head “Other refunds” below the minor head “Income-tax on companies”—major head “020—Corporation Tax” or below the minor head “Income-tax other than Union Emoluments”—major head “021—Taxes on incomes other than corporation tax” according as the payment has originally credited to the major head “020—Corporation tax” or the major head “021—Taxes on incomes other than corporation tax”.
6. Since the adjustment/refund of the amount paid in excess would arise in relation to the deduction of tax at source, the recording of the particulars of adjustment/refund should be done in the quarterly statement of TDS/Annual return (in case of salaries) under the signatures of the Income-tax Officer at the end of the statement, i.e., below the signatures of the person furnishing the statement.
In view of the above, it is clear that you can adjust the excess TDS deposited with the Tax Department with the future TDS liability or any other tax liability under the Income-tax Act, 1961 during the same financial year.