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CMA Final · Direct Tax Laws and International Taxation · Income Computation and Disclosure Standards (ICDS)

Meera Traders, a non-bank business, had a debt of ₹2,00,000 from a customer. In tax year 2026-27 the debt became irrecoverable and was taken into account in computing income as per ICDS, but Meera did not record the write-off in her books. Under section 31 of the Income-tax Act, 2025, what is the position?

The ₹2,00,000 is deductible in 2026-27. Where a bad debt that was included in income is taken into account under ICDS as irrecoverable without a book entry, section 31(3)(b) allows it in the year it becomes irrecoverable and treats it as deemed written off in the accounts.

  1. ADeductible in 2026-27 and deemed written off in the accountsCorrect
  2. BNo deduction, since it was not written off in the books
  3. CDeductible only in the year of actual recovery attempt by court
  4. DDeductible only as a provision limited to 5% of total income

Explanation

Section 31(3)(b) says a bad debt taken into account in computing income as per ICDS without being recorded in the accounts is allowed in the year it becomes irrecoverable, and is deemed written off for sub-section (2). The books requirement is therefore satisfied by deeming. The provision limits apply only to specified assessees.

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