Due Rs12 lakhs written as bad debts in my books of accounts
This query is : Resolved
19 January 2025
I gave Rs12 lakhs to a debtor have gone bad debts.If I inform to income tax department as informant can I receive 20% from income tax as prize money for information.please suggest me the consequences of information on Income Tax portal.
19 January 2025
once you are able to prove that you have made all the efforts to recover your dues and such efforts have failed, all you can do is to claim deduction for bad debts as an expense.
20 January 2025
Then what does it means that parties accounts should match.My debtor will not show my amount due as his income in his books of accounts.If I inform the department regarding this will the department will not take any action against my debtor.please clarify?
20 January 2025
If some party does not make payments to its creditors and then the amount must be treated as income as per Income Tax laws. Does this not apply in my case?
23 January 2025
Income tax department have made rules regarding escaped income .will department take any action after my information??
12 August 2025
You’ve raised a very valid and thoughtful question. Let’s break it down carefully and clarify what happens when a debtor defaults, and whether the Income Tax Department (ITD) can or will take action based on your information.
🧾 Scenario Summary:
You had given ₹12 lakhs to a debtor.
The debtor didn’t pay → You wrote it off as bad debt in your books.
You suspect that the debtor didn’t show this amount as a liability or income.
You are thinking of informing the Income Tax Department in hopes that:
They’ll take action.
You might get 20% reward as an informant under the Income Tax Reward Scheme.
✅ Let’s Address Your Key Questions:
🔹 1. Can the Debtor Treat Your Loan/Advance as “Not Payable” and Avoid Tax?
No — not legally.
Under Section 41(1) of the Income Tax Act, if a debtor has previously claimed an expense or liability and later writes it off or stops paying it, the amount may become taxable as income.
But in your case, you gave money to the debtor — likely as a loan or credit for goods/services.
If your debtor writes off the liability in their books (i.e., stops showing it as payable to you), and doesn't return the money, it can be treated as income in their hands.
So yes — your understanding is correct. If the debtor has escaped income, it can be taxable.
🔹 2. Can You Inform the Income Tax Department? Will They Take Action?
Yes, you can inform.
The Income Tax Department has a “Tax Informant Reward Scheme” (latest update: 2023), which allows individuals to report tax evasion or undisclosed income.
✅ What You Can Do:
Submit detailed information under the “Form for Informants” available at:
https://www.incometax.gov.in/ under “Reporting Misconduct” or “Informant Reward Scheme” section.
Include:
Your details (if not anonymous)
PAN or business details of the debtor
Copy of ledger or invoice or agreement
Proof that you wrote it off, and they didn’t record the payable
Communication attempts (if any)
📌 Will the department take action?
If they find sufficient prima facie evidence that your debtor has escaped income, they may issue a notice under:
Section 148A (for income escaping assessment)
Or conduct a survey/inspection
Action is at their discretion, based on evidence and size of the case.
🔹 3. Can You Get a Reward (20%) from the Department?
Possibly yes — but only under strict conditions.
The Income Tax Informant Reward Scheme, 2018 allows for rewards up to 20% of tax recovered in case of:
Undisclosed foreign assets or income, or
Major tax evasion by domestic parties
In your case (domestic debtor), reward is not guaranteed, and usually paid only if recovery is made and the information is credible, new, and actionable.
Also:
Informant must submit information in prescribed form through DGIT (Intelligence)
There’s no reward if info is vague, public, or already under investigation.
⚠️ Consequences of Informing:
✅ If your case is strong, ITD may investigate the debtor.
✅ You can still claim the bad debt as an expense in your ITR.
❌ Your identity is protected, but the process is long and not automatic.
❌ Don’t expect immediate or guaranteed reward unless it’s a major evasion case.
🔚 Final Thoughts:
Question Answer
Can I claim bad debt? ✅ Yes, as an expense under Section 36(1)(vii) if conditions are met.
Will ITD act if I inform about the debtor? ✅ Possibly, if the info is strong and shows income has escaped.
Will I get 20% reward? ❌ Not automatically. Only in major cases, after successful recovery.
Can debtor be taxed for writing off the liability? ✅ Yes, under Section 41(1) if applicable.
🧾 Scenario Summary:
You had given ₹12 lakhs to a debtor.
The debtor didn’t pay → You wrote it off as bad debt in your books.
You suspect that the debtor didn’t show this amount as a liability or income.
You are thinking of informing the Income Tax Department in hopes that:
They’ll take action.
You might get 20% reward as an informant under the Income Tax Reward Scheme.
✅ Let’s Address Your Key Questions:
🔹 1. Can the Debtor Treat Your Loan/Advance as “Not Payable” and Avoid Tax?
No — not legally.
Under Section 41(1) of the Income Tax Act, if a debtor has previously claimed an expense or liability and later writes it off or stops paying it, the amount may become taxable as income.
But in your case, you gave money to the debtor — likely as a loan or credit for goods/services.
If your debtor writes off the liability in their books (i.e., stops showing it as payable to you), and doesn't return the money, it can be treated as income in their hands.
So yes — your understanding is correct. If the debtor has escaped income, it can be taxable.
🔹 2. Can You Inform the Income Tax Department? Will They Take Action?
Yes, you can inform.
The Income Tax Department has a “Tax Informant Reward Scheme” (latest update: 2023), which allows individuals to report tax evasion or undisclosed income.
✅ What You Can Do:
Submit detailed information under the “Form for Informants” available at:
https://www.incometax.gov.in/ under “Reporting Misconduct” or “Informant Reward Scheme” section.
Include:
Your details (if not anonymous)
PAN or business details of the debtor
Copy of ledger or invoice or agreement
Proof that you wrote it off, and they didn’t record the payable
Communication attempts (if any)
📌 Will the department take action?
If they find sufficient prima facie evidence that your debtor has escaped income, they may issue a notice under:
Section 148A (for income escaping assessment)
Or conduct a survey/inspection
Action is at their discretion, based on evidence and size of the case.
🔹 3. Can You Get a Reward (20%) from the Department?
Possibly yes — but only under strict conditions.
The Income Tax Informant Reward Scheme, 2018 allows for rewards up to 20% of tax recovered in case of:
Undisclosed foreign assets or income, or
Major tax evasion by domestic parties
In your case (domestic debtor), reward is not guaranteed, and usually paid only if recovery is made and the information is credible, new, and actionable.
Also:
Informant must submit information in prescribed form through DGIT (Intelligence)
There’s no reward if info is vague, public, or already under investigation.
⚠️ Consequences of Informing:
✅ If your case is strong, ITD may investigate the debtor.
✅ You can still claim the bad debt as an expense in your ITR.
❌ Your identity is protected, but the process is long and not automatic.
❌ Don’t expect immediate or guaranteed reward unless it’s a major evasion case.
🔚 Final Thoughts:
Question Answer
Can I claim bad debt? ✅ Yes, as an expense under Section 36(1)(vii) if conditions are met.
Will ITD act if I inform about the debtor? ✅ Possibly, if the info is strong and shows income has escaped.
Will I get 20% reward? ❌ Not automatically. Only in major cases, after successful recovery.
Can debtor be taxed for writing off the liability? ✅ Yes, under Section 41(1) if applicable.
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