Tds-prior period payment

This query is : Resolved

Premlata Jain (Querist)
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17 February 2012 Dear Sir/Madam

Please suggest:
1.Whether TDS on contractor payment is to be deducted at 2% or 30% or some other % for the bill pertaining to the month of Feb 2011 & March 2011(Previous year) as this will be a prior period item to be paid in this year by Feb 2012

2.Whether this expense is disallowed in the current year.

Thanks

CA Sumat Singhal

CA Sumat Singhal (Expert)
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17 February 2012 (i) one per cent. where the payment is being made or credit is being given to an individual or a Hindu undivided family;

(ii) two per cent. where the payment is being made or credit is being given to a person other than an individual or a Hindu undivided family, of such sum as income-tax on income comprised therein.

exp will be allowed.

Premlata Jain

Premlata Jain (Querist)
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21 March 2012 The Query is regarding treatment of prior period items...Bill received in previous not booked & paid in the previous year. Now, they are making payment in current year. What % to be deducted as TDS in such case & whether such prior period payment are allowed as expense....Thanks

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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27 July 2025 Here’s a clear explanation for your TDS and prior period payment query:

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### 1. **TDS Rate on Contractor Payment for Prior Period Bills**

* For **contractor payments** (works contract), **TDS rate** depends on the type of deductee:

* **1%** if the contractor is an **individual or HUF**.
* **2%** if the contractor is a **company, firm, or others** (i.e., any person other than individual/HUF).

* The fact that the bill relates to the **previous financial year** (Feb and Mar 2011) but is being paid now (Feb 2012) does **not change the applicable TDS rate**.

* You should deduct TDS at the **normal applicable rate** (1% or 2%) on the amount paid now.

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### 2. **Whether the Expense is Allowed in the Current Year**

* Since the expense pertains to the **previous year**, ideally it should have been booked in that year.

* However, if the payment is made in the **current year** for a prior period liability and:

* You have not claimed it in the previous year’s books,
* Then it will be treated as a **prior period expense** and allowed in the current year (usually disclosed under "Prior Period Expenses" in the Profit & Loss account).

* This means the expense **will not be disallowed**, but proper accounting disclosure is recommended.

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### Summary:

| Query | Answer |
| -------------------------------------------------------------- | --------------------------------------------------- |
| Applicable TDS rate on contractor payment (prior period bills) | 1% for Individual/HUF, 2% for others (company/firm) |
| Expense deduction in current year | Allowed, but treated as prior period expenses |

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If you need, I can help draft journal entries or disclosures related to this. Want me to do that?

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