Tds collected and deposited on interest to partners

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

08 June 2012 Dear Sir,

in F.Y. 2011-12 by-mistake TDS on interest paid to partners was deducted and deposited. Also submit the return for the same. Actually there was no payment of interest made to the partner. Tell me the how to rectify the same.

Thanks in advance to give me the solution of the same.

Amol S Joglekar

Amol S Joglekar (Expert)
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08 June 2012 Contact the concerned ITO of proper jurisdiction and get the challan rectified under "ADVANCE TAX" (Refund is out of question) Then pass the entry as that of advance tax. Till that time keep it in suspense.

Querist : Anonymous

Querist : Anonymous (Querist)

15 June 2012 thanks but still expecting more

Amol S Joglekar

Amol S Joglekar (Expert)
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16 June 2012 Appreciate your quest but you need to be more specific on the query. Once the chalan is converted into ADVANCE TAX, you can pass the entry by debiting the capital account of the partner. In case of "FIXED capital", the entry is routed through partners' current account instead of CAPITAL account. Should you have any difficulty, please feel free to send the query at amolshankar@gmail.com

Querist : Anonymous

Querist : Anonymous (Querist)

16 June 2012 Sir,

Is it possible to revise the TDS return with zero payment to partner but with TDS deduction.

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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27 July 2025 This is a nuanced situation involving **TDS wrongly deducted and deposited** on **non-existent interest payments to partners**. Let's break down your questions and provide a clear path forward.

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### ✅ Background:

* You **deducted and deposited TDS** on interest to partners in **FY 2011–12**
* But later realized: **no interest was actually paid**
* TDS return was already **filed**
* Now you want to **rectify** the mistake

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## 🔎 Issue Summary:

1. **TDS was deducted and deposited even though no income was paid**
2. TDS return reflects interest paid and TDS deducted — **factually incorrect**
3. The partner may see this TDS in **Form 26AS**, though they never received interest income
4. Now you want to **revise or rectify** the return and resolve the tax treatment

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## 🔧 What Can Be Done

### ✅ Option 1: **Revise the TDS Return (If within Time Limits)**

If you are within the **permissible time to revise** (typically within 1 year from the end of the financial year or assessment year), you can:

* Revise the **TDS return** (Form 26Q likely, for section 194A)
* Update the return to:

* Set the **TDS amount to zero**
* Set **paid amount = zero**
* Or delete the row/entry entirely (depending on software)

🟨 **Challenge**: Since TDS was **actually deposited**, the CPC system may **not allow zero-payment or deletion** in revised return, because the **challan was used**.

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### ✅ Option 2: **Request Refund / Reclassification via Assessing Officer**

Since TDS has already been **paid to government**, the **refund process is not direct**.

Instead, you may:

1. Write to your **TDS Assessing Officer** (Jurisdictional AO)
2. Explain the **error of deduction on non-existent interest**
3. Request either:

* **Reclassification** of the TDS amount as **advance tax/self-assessment tax** of the firm
* OR allow you to claim **refund** under **Section 239** by filing a **Form 30**

📜 **Relevant Sections**:

* **Section 200**: Duty to deduct and deposit TDS
* **Section 239**: Refund claim not covered by return
* **CBDT Circular No. 285 (1980)**: Allows refund of excess TDS in special cases via AO approval

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### 🧾 Accounting Treatment Suggestion

Until resolved:

* Show the amount as **Advance Tax** or **Recoverable from IT Dept.** in books
* If eventually unrecoverable, treat as **irrecoverable expense (optional)** — ideally avoid

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## ❌ What You **Cannot Do**:

* You **cannot** file a revised return showing TDS deduction **without payment**
* You **cannot** claim refund through the TDS return portal (TRACES)
* The **partner cannot** claim refund unless they show **matching interest income**

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### 📝 Recommended Steps:

1. Write a letter to the **TDS AO** explaining the situation
2. Attach:

* TDS challan copy
* Original TDS return copy
* Partner ledger showing no interest paid
* Affidavit/confirmation from partner (optional but helpful)
3. Request refund or conversion to advance tax (as applicable)

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### 📌 Summary:

| Issue | Action |
| ---------------------------- | --------------------------------------- |
| TDS deducted without payment | File rectification OR approach AO |
| TDS return already filed | Revise if possible, else AO route |
| Refund request | Apply under Sec 239 / CBDT Circular 285 |
| Partner unable to claim | Must not claim, as income not received |

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Let me know if you need a **sample letter to the AO** for refund or conversion request. I can draft one for you.

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