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Bad Debt Provisioning

vinay (Trainee CMA) (241 Points)

08 February 2018

Hi
One of our clients who is a partnership firm is having some dues from certain customers which is due for last three years. The client is in the opinion that they wont be able to recover the same anymore.. Please help me to deal with it and how to do provisioning of bad debts under income tax as per assessment of firms rules Please help

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8 Replies

Krishan kant (student) (600 Points)
Replied 08 February 2018

just write off it in the books as actual bad debt and keep all the records safe like invoices and mails safe for scrutiny assessment if any for future

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Krishan kant (student) (600 Points)
Replied 08 February 2018

please note that in future if scrutiny assessment will happen then AO will ask just one question when it was booked as income in the books of account then you have to provide proof for that

vinay (Trainee CMA) (241 Points)
Replied 08 February 2018

Thanks for reply.. But can you please elobrate on what basis we can write off some figures.. I mean is there any minimum period for treating due as bad debts...

vinay (Trainee CMA) (241 Points)
Replied 08 February 2018

And is bad debts an admissible expense while computing tax of a firm.. Please help

Krishan kant (student) (600 Points)
Replied 08 February 2018

yes bad debt is an admissible expense under section 36 (vii) of income tax act

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vinay (Trainee CMA) (241 Points)
Replied 08 February 2018

Noted.. Thanks a lot

J. K. Ratan (Compliance Advisor) (794 Points)
Replied 08 February 2018

Agreed with Mr. Kant

VENKATESH M (MANAGER - DIRECT & INDIRECT TAXATION) (75 Points)
Replied 09 February 2018

Hi,

First and Foremost Make a Provision for Bad Debts in books, and after satisfactory follow up for recovery is made and when it is fully confirmed that The Debt is not Recoverable then it should be written off in books of accounts.

However all the Evidence should be maintained that recovery process was undertaken to satisfy the Assessing Officer.

1.Make a Provison for Bad Debts.

2. Then Transfer to Bad Debts Account.