Bad Debt Written Off? Claim 100% Tax Deduction Now

If your business wrote off a bad debt in its books, you can claim a full tax deduction on it — even if you are still trying to recover the money. A recent ITAT ruling confirms this right for Indian businesses.

Here's what happened: The Ahmedabad Income Tax Appellate Tribunal ruled that a bad debt deduction is valid once the amount is written off in company books and legal conditions under the Income Tax Act are met.. Crucially, ongoing recovery proceedings do NOT disqualify the deduction — you do not need to exhaust all recovery efforts before claiming.. The Tribunal also allowed bad debt to be treated as a business loss under Section 28 of the Income Tax Act, giving businesses an additional legal pathway to reduce taxable income..

What you should do: Write off any genuinely unrecoverable receivables in your books before the financial year closes — this is the primary trigger for claiming the deduction.. File your ITR or business tax return with the bad debt claim under Section 36(1)(vii) — attach debtor ledger, invoices, and written-off entries as supporting documents.. Consult a CA if your bad debt recovery case is still in court — you can likely still claim the deduction in the year of write-off, not the year of final settlement..

You do NOT need a court decree proving the debt is irrecoverable. Writing it off in your books and showing it was part of business income is sufficient to claim the deduction under Section 36(1)(vii).