refund of TDS on FDRs. by housing society

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SURINDER SINGH (Querist)
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29 June 2009 a group housing society makes FDRS of its surplus with bank and earns interest . the bank deducts TDS. HOWEVER society distributes entire interest among members AFTER deuctting TDS on it.therefore net interest income of society is NIL. However it claims refund of TDS deducted by bank from I.TAX authorities. My queries are
1. Since society divides entire interest among member .is interest exempt in society hands
2 net interest (intt earned - intt. given to member )is nil, will the society get refund of TDS deducted by bank
REFERENCE to some case laws shall be highly appreciated

Ratan Sharma

Ratan Sharma (Expert)
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29 June 2009 1. No interest is not exempt in the hands of society. Distributing the income is a different issue.
2. Yes certainly the society will get the TDS refund deducted by the bank if your income is Nil.
Please note generally the housing society distributes the dividend to its members and not the interest. Distribution of dividend doesnt makes the income Nil.

SURINDER SINGH

SURINDER SINGH (Querist)
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01 July 2009 Sir
Regarding interest income ,there are HC judgements in Director of Income-tax Vs. Alll India Oriental Bank of Commerce Welfare Society (2003) 130 Taxman 575 (Delhi) and The Country Club Vs. The Director of Income-tax ITA 84/2003 wherein interest income was held exempt on Principle of Mutuality.Please clarify.an early response shall be highly appreciated
Thank you

Aashok Kumar Sharma online

Aashok Kumar Sharma online

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20 July 2025 Great follow-up! Here's a detailed clarification on your queries about TDS refund on FDR interest in housing societies:

1. Is the interest exempt in the hands of the society since it distributes entire interest among members?
Principle of Mutuality applies here: Income arising from transactions among members of a mutual association (like a housing society) is generally exempt from tax because the society is not earning income for profit but for the benefit of its members.
However, for interest income on FDRs, the courts have given mixed rulings:
In Director of Income-tax vs. All India Oriental Bank of Commerce Welfare Society (Delhi HC, 2003), it was held that interest income earned by a mutual society from bank deposits was exempt under Principle of Mutuality.
In The Country Club vs. Director of Income-tax (ITAT), a similar exemption was upheld.
So if the society is a genuine mutual entity and interest arises from funds contributed by members and is only distributed back to members, interest income is exempt under Principle of Mutuality.
2. If net interest income is NIL (interest earned - interest distributed), can the society claim refund of TDS deducted by the bank?
Yes, since the society’s net taxable income from interest is NIL or exempt, the society is eligible to claim a refund of TDS deducted by the bank on interest credited to FDR.
The society should file a return of income showing NIL or exempt income, along with TDS certificates (Form 16A) and apply for a refund from the Income Tax Department.
Additional Notes:
It is crucial that the society does not treat the interest as business income but as income arising from mutual transactions.
The society should maintain records evidencing the mutual nature of transactions and that interest is distributed among members.

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