Tds u/s. 194c
This query is : Resolved
05 March 2016
If I've entered into a contract with a company and I've received advance (nett of TDS) and the same TDS has been claimed by me while filing ROI. The issue is, the whole contract is cancelled now & I've refunded the nett amount. How do I reverse the credit of TDS claimed?
05 March 2016
Dear
Now the refund or credit cannot be reversed.
Now the refund or credit cannot be reversed.
05 March 2016
So that means I've to refund gross amount ?
02 August 2025
Yes, your understanding is **correct**. Let's go through this clearly:
---
## 🧾 Situation Summary:
* You entered into a **contract** covered under **Section 194C**.
* You received an **advance payment** from the other party, **after deduction of TDS** (i.e., net of tax).
* You **claimed credit** for that TDS in your **Return of Income (ROI)**.
* Now, the **contract is cancelled**, and you've **refunded the advance amount** (net amount).
* You want to know how to **reverse the TDS credit** that was already claimed.
---
## ❌ Can TDS Credit Be Reversed in ROI?
> Unfortunately, **once the TDS credit is claimed and the return is processed**, **there is no provision in the Income Tax Act to voluntarily reverse that TDS credit** in a later year or via revised return, especially if it was allowed and refunded.
So **you cannot reverse the TDS credit** via the ITR portal or any formal tax mechanism.
---
## ✅ What Is the Correct Course of Action?
To make the **other party (payer)** whole, you should ideally **refund the ***gross amount***, i.e., including the TDS portion**.
Why?
* The **payer deducted TDS** and deposited it to the government — they can’t recover it back from the IT Department.
* You've **taken credit for that TDS**, so it's effectively money you’ve already received via refund or tax adjustment.
* Hence, to **fully cancel the transaction**, you should **refund the gross advance**, including the tax part.
---
## 🔄 Example:
Let’s say:
* Advance (gross): ₹1,00,000
* TDS deducted @2%: ₹2,000
* Net received: ₹98,000
* Contract now cancelled
* You claimed ₹2,000 as TDS in ITR and got refund or adjusted it
Now, to cancel everything cleanly:
* You should refund **₹1,00,000** (not just ₹98,000), because you already **benefited** from the ₹2,000 (via TDS credit).
---
## ✅ Optional Internal Adjustment
If both parties agree, you could:
* **Repay only ₹98,000**, and
* **Reimburse the TDS part separately**, or **agree** that the payer adjusts this in future dealings
—but this is a **commercial arrangement**, not something recognized by the tax department.
---
## 🔚 Summary
| Action | Can it be done? |
| -------------------------------------- | -------------------------------- |
| Reverse TDS claimed in ROI | ❌ No |
| Refund only net amount | ❌ Not sufficient in strict terms |
| Refund gross amount | ✅ Yes, correct approach |
| Adjust in future transactions (mutual) | ✅ Possible but informal |
---
Let me know if you want help drafting a letter or note explaining this to the payer.
---
## 🧾 Situation Summary:
* You entered into a **contract** covered under **Section 194C**.
* You received an **advance payment** from the other party, **after deduction of TDS** (i.e., net of tax).
* You **claimed credit** for that TDS in your **Return of Income (ROI)**.
* Now, the **contract is cancelled**, and you've **refunded the advance amount** (net amount).
* You want to know how to **reverse the TDS credit** that was already claimed.
---
## ❌ Can TDS Credit Be Reversed in ROI?
> Unfortunately, **once the TDS credit is claimed and the return is processed**, **there is no provision in the Income Tax Act to voluntarily reverse that TDS credit** in a later year or via revised return, especially if it was allowed and refunded.
So **you cannot reverse the TDS credit** via the ITR portal or any formal tax mechanism.
---
## ✅ What Is the Correct Course of Action?
To make the **other party (payer)** whole, you should ideally **refund the ***gross amount***, i.e., including the TDS portion**.
Why?
* The **payer deducted TDS** and deposited it to the government — they can’t recover it back from the IT Department.
* You've **taken credit for that TDS**, so it's effectively money you’ve already received via refund or tax adjustment.
* Hence, to **fully cancel the transaction**, you should **refund the gross advance**, including the tax part.
---
## 🔄 Example:
Let’s say:
* Advance (gross): ₹1,00,000
* TDS deducted @2%: ₹2,000
* Net received: ₹98,000
* Contract now cancelled
* You claimed ₹2,000 as TDS in ITR and got refund or adjusted it
Now, to cancel everything cleanly:
* You should refund **₹1,00,000** (not just ₹98,000), because you already **benefited** from the ₹2,000 (via TDS credit).
---
## ✅ Optional Internal Adjustment
If both parties agree, you could:
* **Repay only ₹98,000**, and
* **Reimburse the TDS part separately**, or **agree** that the payer adjusts this in future dealings
—but this is a **commercial arrangement**, not something recognized by the tax department.
---
## 🔚 Summary
| Action | Can it be done? |
| -------------------------------------- | -------------------------------- |
| Reverse TDS claimed in ROI | ❌ No |
| Refund only net amount | ❌ Not sufficient in strict terms |
| Refund gross amount | ✅ Yes, correct approach |
| Adjust in future transactions (mutual) | ✅ Possible but informal |
---
Let me know if you want help drafting a letter or note explaining this to the payer.
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