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Cessation of liability

Parth Mehta (53 Points)

29 August 2024

creditors written off covered under the 41(1)(a) or 41(1)(b)

Please guide me with the explanation.

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Rama chary Rachakonda (Master in Accounts & Lawyer email ID:ramachary64@gmail.com voice no:9989324294) (4208 Points)
Replied 30 August 2024

Section 41 of the Income-tax Act, 1961 deals with the treatment of creditors written off. Here's a brief explanation: 41(1)(a): - Applies to creditors written off as irrecoverable. - Amount written off is allowed as a deduction from business income. - This provision covers cases where the debt becomes bad and is written off as a loss. 41(1)(b): - Applies to creditors written off due to remission or waiver. - Amount written off is treated as income and taxed accordingly. - This provision covers cases where the creditor voluntarily waives or remits the debt. Key differences: - 41(1)(a) deals with bad debts written off as irrecoverable. - 41(1)(b) deals with debts written off due to remission or waiver. To determine which provision applies, consider the reason for writing off the creditor: - If it's due to irrecoverability, use 41(1)(a). - If it's due to remission or waiver, use 41(1)(b).

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