Bad debts claim for business

Dear Gopal

• From the facts you have given, it sounds like a perfect case eligible for deduction as bad debt u/s 36(1)(vii). 
• The said section demands only 2 things: (a) the debt has been taken into account while computing income of the previous year or any of the earlier previous years and (b) the debt has been written off in the books as bad debt.
• From the facts you supllied, you have already accounted the sales in an earlier year with a correspoding debit to the Debtor's Account. So first condition has been satisfied.
• For the satisfaction of the second condition, make sure that you write off the debt as bad debt in your accounts. Here, tranfer to a provision for bad debt will NOT be considered as bad debt written off.
• If the above conditions are satisfied, bad debts will be allowed and you need not establish that debt has become irrecoverable for the purpose of this section.
• Even though establishing that the debt has become a bad debt is not requried under this section, in case the Assessing Officer excercises his general power to examine the genuineness of the claim, it is always better in such cases to write a letter to your debtor demaning the payment which may be sent by Registerd Post with Acknowledgment Due so that this can be produced before authorities as a bare minimum to show that you have indeed taken the minimum steps to recover the debt before writing it off. You may atleast write an e-mail making a claim of the debt.
• If such debt is subsequently realised in some circumstances, the same will be taxable u/s 41(4).

Regards

Ajay

Yes, you shall be eligible to claim bad debts deductions in your P&L a/c. Make sure your documentations with regards to previous transactions and written of entry of the concerned party is in place.

You have all things in your favor :-

1. Audit report

2. Recorded transactions. 

3. tax payment at time

Agree with Ajay's reply completely. 

Sir,

How to make bad debts entry

Bad debts a/c (expenses)..dr

To Debtor