Democrats on the House Ways and Means Committee are preparing to approve legislation repealing 10 percent withholding on interest and dividend income, in an attempt to pass a political hot potato to the president.

The action, if approved by Congress, would oblige the president to act on a promise to veto repeal legislation, which has powerful support in and out of Congress. The Republican-controlled Senate has passed a "compromise" postponing withholding at least until 1987, in hopes of giving the president a bill he could sign, thus avoiding a likely legislative defeat.

Full repeal would put that burden back on the president's shoulders.

Ironically, a rejection of the Senate compromise would also take the banking lobby off an embarrassing hook.

The bankers, whose lobbying pressure produced the Senate compromise, now contend that one of its sections, requiring new penalties, auditing procedures and reporting requirements, would be worse for them than withholding.

The major flaw of the compromise, according to the American Bankers Association, is that it would require publication of a list of all taxpayers who have filed incorrect Social Security numbers or who have failed to report interest income.

This master list, which could be as long as the New York telephone book, would have to be checked every time a teller opened a new account paying interest. For anyone found on the list, the bank would have to withhold 20 percent of all interest income.

The Treasury Department has agreed with the banks' complaints that the list would create extraordinary burdens on both the banks and the Internal Revenue Service, in addition to raising questions of taxpayer privacy.

Unless Congress acts, 10 percent withholding on dividend and interest income will be effective on July 1. Repeal of the provision would cost the federal Treasury an estimated $13.4 billion over six years. The Senate compromise would, according to new estimates, result in the loss of $7.3 billion.

Rep. Dan Rostenkowski (D-Ill.), chairman of the Ways and Means Committee, plans to press for complete repeal at a committee meeting Thursday afternoon, according to aides, and he reportedly has the backing of enough Democrats on the panel to be successful.

He would then press for the House to take up the legislation on an accelerated timetable at the beginning of next week under a suspension of the rules. Such a procedure requires that the repeal legislation receive the support of two thirds of the members of the House, but it also prevents anyone from offering any amendments and limits debate to 40 minutes.

Last week, Rostenkowski suffered a sharp rebuke when a majority of the House signed a special petition discharging the Ways and Means Committee from responsibility for the withholding repeal legislation unless it took action before May 23. Approving complete repeal would nullify the force of the petition.

There are, however, a number of other factors clouding the Rostenkowski strategy:

* Rep. Jim Wright (D-Tex.), the majority leader, said he may try to use the withholding repeal bill as a vehicle to attack the 10 percent cut in individual tax cuts on July 1, a key section of Reagan's 1981 tax bill. Wright said he may ask to be allowed under the rules to propose "capping" the individual rate cut so that no one gets a reduction of more than $700.

* On the same day the Ways and Means Committee is taking up withholding, it is also scheduled to take up legislation raising the nation's debt ceiling to at least $1.39 trillion, a bill that will have to pass sometime this year to permit continued operation of the government.