E bad debt

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If you're writing off bad debt for FY 20-21 and face queries from the Income Tax Assessing Officer, ensure you have documentation proving sufficient follow-ups. Formal communications like emails and letters are key. Not provisioning for bad debts isn't usually a problem for tax purposes, as provisions are generally not allowable deductions unless specific exceptions apply. The age of the debt also strengthens your claim.

MAKARAND DAMLE

MAKARAND DAMLE (Querist)
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17 May 2021 For writing off amount as bad debt in f y 20-21 what documents are necessary in case of any query from Income Tax Assessing Officer.

Also the company has not made any provision for bad debts. Will this create any problem ?

CMA Poornima Madhava

CMA Poornima Madhava (Expert)
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17 May 2021 Not provisioning a bad debt is not a problem. Even if it was provided such provision is not an allowable deduction under IT Act (subject to certain exceptions).
If you believe that sufficient follow ups have been made and there exists a strong reason to support your claim, then you may treat it as a bad debt. Also the age of debt matters, the older the age, the stronger would be the reason.
Formal communications like email, follow-up letters, notice sent (if any) etc would be sufficient for submission during audit.

PARAS CHHAJED

PARAS CHHAJED

(Expert)
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18 May 2021 To claim a bad debt as an expenditure for the purpose of assessment of income it is sufficient if the debt is actually written off in the accounts.

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