Bad Debt Written Off? Claim Your Tax Deduction Now

If your business is owed money that looks unrecoverable, you can write it off in your books and claim a full tax deduction — even if you're still trying to recover that money in court or otherwise.

Here's what happened: India's ITAT (Income Tax Appellate Tribunal) ruled that a bad debt deduction is valid once the amount is written off in the company's books — recovery proceedings don't block the claim.. The Tribunal confirmed bad debt claims are covered under Section 36(1)(vii) of the Income-tax Act, and can also be treated as business loss under Section 28.. The key legal requirement is that the debt must have been previously included as income or part of the business — and then formally written off in the accounts..

What you should do: Write off unrecoverable dues formally in your books of accounts before the financial year closes — a board resolution or journal entry is the minimum proof you need.. File your ITR with the bad debt deduction claimed under Section 36(1)(vii) — attach documentation showing the debt was part of your business income and is now deemed irrecoverable.. Consult a CA if recovery proceedings are ongoing — this ruling confirms you don't need to wait for a court outcome to claim the deduction, so don't delay your tax benefit..

Even if you later recover the written-off debt, just declare that recovered amount as income in the year you receive it — you won't lose your original deduction.