Provision for Bad and doubtful debts in case of Banks - Section 36(1)(viia) - Income Tax - Ready Reckoner - Income Tax

Provision for Bad and doubtful debts in case of Banks - Section 36(1)(viia) Amount deductible in respect of provision for bad and doubtful debts In the case of an Indian scheduled Bank In case of a Public Financial, State Financial Corporation, State Industrial Investment Corporation and Non Banking Financial Company In the case of a Foreign Bank 8.5% of total income computed before deduction under this section and before deduction under chapter VI-A PLUS 10% of Aggregate Average Advances made by rural branches 5% of total income computed before deduction under this section and before deduction under chapter VI-A 5% of total income computed before deduction under this section and before deduction under chapter VI-A The deduction for provision for bad and doubtful debt is allowed under section 36(1)(viia) provided the provision is debited to the Profit Loss A/c. Note : Aggregate average advance as specified in Rule 6ABA :- (a) the amounts of advances made by each rural branch as outstanding at the end of the last day month comprised in the PY shall be aggregated separately; (b) the sum so arrived at in the case of each such branch shall be divided by the number of months for which the outstanding advances have been taken into the account for the purposes of clause (a) (c) the aggregate of the sums so arrived at in the respect of each of the rural branches shall be the aggregate average advances made by the rural branches of the scheduled bank. Deduction for Actual Bad debts i. No deduction is allowed under section 36(1)(vii) in respect of actual bad debts. ii. The actual bad debts should be debited to the provision for bad and doubtful debts made under section 36(1)(viia) . iii. Where the actual bad debts exceeds the credits balance in the provision for bad and doubtful debt account, then deduction under section 36(1)(vii) shall be allowed for such excess. iv. Provision for bad and doubtful debts referred to in Section 36(1)(vii) means only one account in respect of provision for bad and doubtful debts and such account shall relate to all types of advances including advances made by rural and urban branches. Differences in the provisions of sections 36(1)(vii) and section 36(1)(viia) of the Income Tax Act, 1961 The provisions of sections 36(1)(vii) and section 36(1)(viia) of the Act are distinct and independent items of deduction and operate in their respective fields. Bad Debt written off relating to non-rural advances are allowable in full and not restricted to the credit balance of provision for Doubtful debts allowed as per section 36(1)(viia)(a) of the Act. Bad debts written off relating to rural advances allowable only in excess of the credit balance in the provision for doubtful debts as per section 36(1)(viia) of the act. Rural branch meaning A branch of a scheduled bank or a non-scheduled bank situated in a place which has a population of not more than 10,000/- according to the last preceding census of which the relevant figures have been published before the first day of the previous year.