Provision for bad debts
This query is : Resolved
05 October 2017
If an organization has been continuously observing that historically 2-5% of its debtors never pay up. In such a scenario, is it legally possible for the organization to create a Provision for Bad Debts or a Bad debts reserve so that it need not unnecessarily bloat its profit and pay tax over money it is not going to get anyways??
If the above is not permissible, how does the organization get compensated for the tax paid on income never received?
If the above is not permissible, how does the organization get compensated for the tax paid on income never received?
CA R SEETHARAMAN
(Expert)
06 October 2017
The above is not permissible but write off of bad debts is allowed as deduction for Income tax calculation.
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