17 November 2011
Firstly Section 71 will be applicable and not Section 70, becuase this is a case of inter-head adjustment, i.e., set-off of loss under PGBP against income under the head Capital Gain.
However, your tax treatment is correct, assuming there is no income under the head PGBP. So writing off loans is a bad debt and allowed as deduction, therefore it results in a loss.
But, my friend always remember one thing. Financial prudence prevails over tax planning.
By writing off Rs. 5 lakhs u r incurring a loss of Rs. 5 lakhs in financial terms, unless Mr. X is repaying the money in black.
So in effect, you will get a tax benefit of maximum Rs. 21,000 (30% of Rs. 70,000), but you will also incur a loss of Rs. 5 lakhs. Net effect will be loss of Rs. 4,79,000
17 November 2011
Sir, Writing of loans is a bad debt ??? My friend this is not a business transaction then how bad debt. Sirji writing of loans is capital loss and u write section 71 How???
CAclubindia
