Tds on earler year bills recognised in books in current year

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

17 November 2011 Dear All,
If a company has to recognise an Expense of Freight in Current Year for an expense which relates to 2007-08 (When TDS was applicable on Freight) whether TAX is deductible on it when there is NO TDS liability as on date.

Secondly If the other company providing Transport Service has already recognised its income can claim the credit of TDS deposited Today?

Please Advice.....

VISHRUT

VISHRUT (Expert)
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17 November 2011 No TDS is required to be deducted if there is NO TDS liability on the same as on date.

But if TDS is applicable on freight at that time than TDs have to deduct on accrual basis only i.e. at the time of recognising the expenditure.

The person can claim TDs only in the year in which the income is booked so it will also able to claim TDS on the same.

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Querist : Anonymous

Querist : Anonymous (Querist)

17 November 2011 Dear Vishrut,
Thanx for your opinion,

But still, i am not clear that whether tax is required to be deducted or not?

Co. is not recognising the expense on accrual basis because the same was under some dispute which has settled now and the company has agreed to pay the amount.

Asha Kanta Sharma

Asha Kanta Sharma (Expert)
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27 July 2025 To clarify your situation, let’s break down the key points and address your queries regarding **TDS on earlier year bills recognized in the current year**:

### **1. TDS on Freight for Previous Years Recognized in the Current Year**:

* **Expense Accrual and TDS**:
If the **freight expense** relates to a **previous year** (e.g., 2007-08) but the **company recognizes** the expense in the **current year**, then TDS would typically be required to be deducted **at the time of recognizing the expense**, based on the **accrual method** of accounting.

* **When TDS Was Applicable in 2007-08**:
If TDS was applicable on **freight payments** in the year the expense was incurred (2007-08), **TDS should have been deducted** when the expense was actually incurred (i.e., when it became due for payment).

* **Current Year Recognition**:
If the company **did not recognize the expense earlier** due to some **dispute** and now settles it in the current year, the **TDS liability** would still apply as per the **original year** of the transaction, which is **2007-08**. Since the expense relates to that period, TDS should have been **deducted in that period**.

* **Practical Situation**:
In **practical terms**, if the company is recognizing the freight expense in the **current year**, but the service was rendered in 2007-08, and **TDS was applicable** in that earlier year, the company might face difficulty because **TDS should have been deducted in 2007-08**, and not now in the current year. However, since TDS was not deducted in the earlier year, the company is now **required to deduct TDS in the current year** and remit it.

**Conclusion**:
If the freight expense relates to the **previous year** (2007-08), and the company is recognizing it now, **TDS must be deducted on accrual** as per the provisions of that year (even if it is being recognized in the current year). The company will also need to **remit the TDS** for the current year.

### **2. Claim of TDS Credit by the Transport Service Provider**:

* **Income Recognition**:
The transport service provider, who is **recognizing their income** in the earlier period, can only **claim the TDS credit** in the **year in which the TDS is deducted and deposited**.

* For example, if the TDS is deducted now (in the current year), the transport service provider can **claim the TDS credit** only in the **current year** in which the TDS is remitted to the government.

* Even if the income was recognized in an earlier year, the service provider will be able to claim the TDS credit only **when the TDS is actually deposited** (i.e., in the current year).

### **3. Specific Scenario (When Dispute Settles)**:

* If the freight expense was previously under dispute and **the settlement** has occurred now, the expense is being recognized in the **current year**. However, since TDS was applicable at the time the **freight was incurred** (2007-08), the TDS must be deducted at that time, but since it was not done, **it should be deducted now** in the current year.

* **Practical Solution**: You would have to **deduct TDS** now (in the current year) and deposit it. The transport service provider can **claim TDS credit** for the current year when the TDS is actually deposited.

### **Summary:**

* **TDS on the recognized freight expense**: TDS should have been deducted **when the expense was originally incurred** (2007-08), but since it wasn’t, it needs to be **deducted now** in the current year and **deposited immediately**.
* **TDS credit for the transport provider**: The transport company can claim **TDS credit in the current year**, i.e., when the TDS is actually deducted and deposited.

### **Key Points:**

1. **TDS on earlier year bills** should ideally be recognized in the year the expense was incurred, not when it’s finally paid. If it is being paid now, TDS will have to be deducted now, even if the expense relates to an earlier period.
2. **Transport service provider** can only claim TDS credit in the year the TDS is deducted and deposited (i.e., the current year).

If you're still unclear about how to handle the TDS deductions or need help with calculations, feel free to reach out!

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