Provision for bad debt deductibility

Friends

1) If there is a debt in our balance sheet and we wish to make provision for doubtful debt, we would pass journal entry :

Profit & Loss to Provision for doubtful debt.

Now this provision will be added back for computation of total income for income tax purpose either by assessee itself or by AO at the time of assessment.

2) At the time when the doubtful debt becomes bad, we would pass entry

Provision for doubtful debt to bad debt and then bad debt to debtors. So, there is no impact in PL account.

3) But if in 1 above we pass directly  bad debt to debtors and PL to bad debt (if the debt is really bad) this charge will be allowed under section 36(1).

So, does it mean that we loose the deduction if we make a provision first. ?

Regards,

 

Replies (1)

If the Debts are really bad such that it can not be revocable there is no need to pass the journal entry for provision you can directly pass entry for bad debts and such will be allowed and also there is no need to establish the debt has become bad (As per SC judgemnt)

But the same will be become taxable when bad debts is subsequently recovered.

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