TDS Refund When You Paid Tax the Payee Should Have Borne: Section 434 (Income Tax Act 2025)

Section 434 of the Income Tax Act, 2025 lets a payer claim back tax it has deposited when a written agreement made the payer bear the tax and the payer later takes the view that no tax was deductible at all. The application goes to the Assessing Officer in Form No. 160 within 30 days of the date the tax was paid. The Assessing Officer must decide it within six months from the end of the month in which the application is received.

The provision is narrow. It applies only where the tax is to be borne by the payer under a written agreement or arrangement, and it excludes the non-resident interest case in section 393(2) (Table: Sl. No. 17). This guide explains who can use it, how the 30 days are counted, and what the Assessing Officer must do. Every point is taken from section 434 and rule 230, as amended by the Finance Act, 2026 (tax year 2026-27 onwards).

What is the refund under section 434?

Sometimes a contract says "the payer will bear all taxes", so the payee receives a fixed net amount. Under section 393(10) (which does not apply to the salary case in section 392(2)(a)), the payer then grosses up the income so that after tax is deducted the payee still gets the agreed net sum. The tax on that grossed-up amount is paid to the Central Government by the payer.

If the payer later concludes that no tax was required to be deducted on that income, the deposited tax is money paid in error. Section 434 gives a direct route to ask the Assessing Officer (the income-tax officer who has jurisdiction over the payer's case) for that tax back, without waiting for a return or a TDS correction cycle.

Who can claim a refund under section 434?

Both conditions in section 434(1) must hold:

1. Written agreement. Under an agreement or other arrangement, in writing, the tax deductible on the income is to be borne by the person by whom the income is payable.
2. Payer claims no tax was due. The payer has paid that tax to the credit of the Central Government and claims that no tax was required to be deducted on the income.

The claim cannot be made for interest covered by section 393(2), Table Sl. No. 17, that is, interest payable to a non-resident (not being a company) or a foreign company, where tax at "rates in force" applies. Section 434(1)(a) excludes only that interest; Sl. No. 17 also covers other sums, but the exclusion is worded for interest.

How is the 30-day deadline counted?

The application must be filed within thirty days from the date of payment of such tax. The clock starts on the date the tax is paid to the Government, not on the date of the contract, the invoice or the payment to the payee. The Act does not say the Assessing Officer can extend this period, so treat it as a hard stop.

Does section 434 help if my own TDS credit was denied?

No. Many people searching for a "TDS refund wrongly denied" mean something different: tax was deducted from their income, but the credit was not given or does not show. Section 434 is not for that. It is for a payer who bore the tax under a written agreement and now says no tax was due.

For the deductee, section 390(5) says tax deducted and paid to the Central Government is treated as payment of tax on behalf of the person from whose income it was deducted. Section 390(6)(a) lets the Board make rules for giving that credit and for the tax year in which it is given. Read the TDS credit rules guide for how credit works, and the refund claim guide for the refund route.

What does the Assessing Officer have to do?

• Decide by written order. The officer must allow or reject the application by an order in writing (section 434(2)).
• Hear you before rejecting. No application can be rejected unless you have been given an opportunity of being heard (section 434(3)).
• Inquire if needed. Before passing the order, the officer may make such inquiry as he considers necessary (section 434(4)).
• Meet the time limit. The order must be passed within six months from the end of the month in which the application is received (section 434(5)).

How do you apply? Form 160 and documents

Rule 230 says the claim is made in Form No. 160, by the claimant himself or through a duly authorised agent (for example, a chartered accountant holding authority). The form must be accompanied by a copy of the agreement or other arrangement referred to in section 434. That is why the written agreement matters: without it there is nothing to attach, and the first condition of the section is not met.

Worked example 1: grossing up and the refund amount

Assumptions: tax year 2026-27. A resident company, Meena Traders Pvt Ltd, agrees in writing to pay a service provider a net Rs 90,000, with the company bearing the tax. For illustration, assume the applicable deduction rate under the Act is 20%, and ignore surcharge and cess. (The rate is an assumption for the arithmetic only.)

Step	Working	Amount (Rs)
1. Net amount agreed	As per written agreement	90,000
2. Gross-up under section 393(10)	90,000 / (1 - 0.20) = 90,000 / 0.80	1,12,500
3. Tax deposited by payer	1,12,500 x 20%	22,500
4. Check	1,12,500 - 22,500	90,000
5. Refund claimed if no tax was deductible	Tax deposited, applied for in Form 160	22,500

Worked example 2: dates for the claim and the order

Assumptions: Meena Traders deposited the Rs 22,500 on 10 December 2026 and applies on 5 January 2027.

Step	Working	Date
1. Tax paid	Date of payment of tax	10 December 2026
2. Last day to apply	10 December + 30 days (21 days left in December, 9 in January)	9 January 2027
3. Application filed	5 January 2027 is inside the window	5 January 2027
4. End of month of receipt	Month in which the application is received	31 January 2027
5. Order due by	Six months from 31 January 2027	31 July 2027

Real-life example 1: the contract that said "all taxes on us"

Ravi runs a small firm that engages a consultant under a signed letter stating that Ravi's firm will bear all taxes on the fee. Ravi grosses up the fee and deposits the tax. A fortnight later, his CA reviews the payment and concludes that no deduction applied to that income. Because the agreement is in writing and Ravi is within 30 days of paying the tax, he can file Form 160 with a copy of the letter. The officer must hear him before rejecting the claim.

Real-life example 2: the verbal understanding

Meena agreed over a phone call that she would absorb the tax on a vendor payment. She deposited the tax and later wants it back. There is no written agreement to attach, so section 434(1)(a) is not satisfied. She would have to look at other routes for a refund, which this section does not cover.

Common mistakes

• Missing the 30 days. The limit runs from the date the tax is paid, not from when you discover the error.
• No written agreement. The refund route needs a written agreement or arrangement, and Form 160 must carry a copy of it.
• Using it for Sl. No. 17 interest. Interest covered by section 393(2) (Table: Sl. No. 17), which is payable to non-residents, is excluded.
• Applying to the wrong authority. The application is made to the Assessing Officer, not by revising the TDS statement.
• Skipping the hearing. Rejection requires an opportunity of being heard, so respond to every notice for a hearing.

Quick reference

Item	Rule	Reference
Who applies	Payer who bore the tax under a written agreement	Section 434(1)
Time limit to apply	30 days from date of payment of the tax	Section 434(1)
Form	Form No. 160, with copy of the agreement	Rule 230
Hearing	Required before rejection	Section 434(3)
Order deadline	6 months from end of month of receipt	Section 434(5)
Excluded	Interest under 393(2), Sl. No. 17	Section 434(1)(a)

Where this is in the Act

• Section 434: refund for denying liability to deduct tax in certain cases
• Section 393(10): gross-up where the payer bears the tax
• Section 393(2), Table Sl. No. 17: interest to non-residents (excluded from section 434)
• Rule 230 of the Income-tax Rules, 2026: Form No. 160 and the agreement copy

For general rules on deducting tax on payments such as rent, see our guide on TDS on rent under the Income Tax Act 2025. A CA handling many clients can keep the 30-day windows from slipping by tracking them as dated tasks; Finexo's practice management software for CAs can hold those deadlines against each client. It does not prepare or file Form 160. This article is information, not tax advice.