Bad debts - Section 36(1)(vii) - Income Tax - Ready Reckoner - Income Tax

Bad debts - Section 36(1)(vii) A bad debt shall be allowed as deduction if the following conditions are satisfied: i. The bad debt should be written off as irrecoverable in the books of account of the assessee for the previous year in which deduction is claimed. ii. The debt should have been taken into account in computing the income of the previous year in which deduction is claimed or any earlier previous year OR the debt represents the money lend in the ordinary course of business of money lending or banking carried on by the assessee. Any bad debt or part thereof written off as irrecoverable in the accounts of the assessee shall not include any provision for bad and doubtful debts made in the accounts of the assessee Notes: There is no need to establish/ prove that the debt has become bad/ irrecoverable, it is enough that bad debts is written off in the books of account Bad debts is allowed as deduction only in the year in which they become irrecoverable Following conditions must be satisfied for allowance of a debt as bad debt: It must be a debt such debt must be revenue in nature such debt must be incidental to the business carried on by the assessee such debt have been taken into account in computing the income of the assessee such debt must have written off as irrecoverable in the accounts of the assessee. 4.Treatment of subsequent recovery of an amount claimed and allowed as a bad debt refer Section 41(4) for the treatment.