Withholding tax claim next FY year

Hi Aryan,

This is a common scenario involving delayed receipt of foreign payments and corresponding TDS/WHT deduction in a later financial year.

Key Points:

• Invoice was issued in FY 2020-21 but payment (and WHT deduction) happened in FY 2021-22.

• You did not have any invoice or income in FY 2021-22 related to this party.

• WHT certificate was provided for the FY 2021-22 when payment was actually made.

Can you claim the WHT credit in FY 2021-22?

Yes, you can claim the credit for the withholding tax deducted in FY 2021-22, even though the invoice was issued in the previous year.

Why?

• Income is taxable on receipt basis (especially for foreign income) in many cases.

• Tax deducted (WHT) is on the actual receipt of payment, not just on invoice issuance.

• The WHT certificate is issued for the year in which tax is deducted (FY 2021-22).

• Therefore, the credit for this WHT will be reflected in FY 2021-22, which is when you actually got the payment and tax deduction.

What you should do:

1. Report the income and claim WHT credit in FY 2021-22 (the year of receipt).

2. Disclose the foreign income and the WHT certificate details while filing income tax return for FY 2021-22.

3. Maintain all documents like invoice (FY 2020-21), payment proof (FY 2021-22), and WHT certificate (FY 2021-22) for records and future scrutiny.

Additional note:

• The accounting entry for income should be in the year payment is received (FY 2021-22), so income recognition and tax credit claim will align.

• If your accounting is on accrual basis and income was recognized in FY 2020-21, consult your tax advisor for alignment on income recognition and tax credit claim.