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Bad debts v/s taxes

(Guest)

Will the taxes also get reversed when Bad debts accounted against debtors...? can any one please let me know.

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6 Replies

Devendra (Chartered Accountant) (4775 Points)
Replied 05 December 2012

In case of Bad Debts, you will have to Reverse the amount of Tax as the same is irrecoverable.

Regards,

Devendra Kulkarni

(Guest)

Thank you..

Nirav Worah (CHARTERED ACCOUNTANT) (396 Points)
Replied 05 December 2012

There are no provisions if service tax has already been paid but the payment has not been received. As per departmental clarification the provisions of self adjustment are not applicable in case of bad debts. These have to be treated as loss to the company.

(Guest)

The bad debts related to the year 2011-12. In said F.Y the service tax to be payable on collection basis. In this view the s.tax is also to be reversed when bad debts accounted as per my assumption.

(Guest)

Also the bad debt is deductible expenses as per I.T. But why the tax including in bad debts is not a reversable if it is already paid to the department. ..? Why the business should bear the losses from non receipt.

In case the bad dets is only 5%-10%, doesnt effect to cash flows much. But if the % more than 10 & likely upto 20%-30%. What about the business conditions for particular financial year...??

Nirav Worah (CHARTERED ACCOUNTANT) (396 Points)
Replied 06 December 2012

Going strickly by the law there are no such provisions for reversal. This is the loophole in the law. There are high chances of department denying such reversal during departmental audit or scrutiny. Moreover, I don't think the provisions of income tax act can be used to interpret the provisions of service tax.

However, you may make such reversal if there is renegotiation of invoice or if you recieve a debit note from service reciever. The service tax law is silent about bad debts