Income tax - 36(1)(vii)

According to section - 36(1)(vii) - Bad debt will be allowed when :-

1- They should be written off in books.

2- They should be taken into account in computing the income of previous year in which ded. is claimed or in any earlier years.

Explanation to this sec. - For the purpose of this clause any bad debt (to be written off) should not include any provision for bad or doubtful debt.

Querry:- What is the benefit of creating provision for d/debts when they are not allowed as deduction. Income tax allows deduction only when entry is

:- Bad deb dr - to debtor (and not bad debt dr -to prov for doubtful debt). This way prov for doubtful debt will always remain idle with no use.

Replies (2)

Bad debts are the ones which will never be recovered either in the current audited financial year or years to come.  But there is every possiblity to reverse a doubtful debt when the circumstances develop positively. That may be the reason why ITD is not allowing any provision at all.

What if provisions are never going to be reversed and they result in actual loss?

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