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

Under the Income-tax Act, 2025, a bad debt which has been taken into account in computing income in the tax year it became irrecoverable, as per the ICDS, but not written off in the books of account, is treated how for deduction under section 31?

Such a bad debt is allowed as a deduction in the year it becomes irrecoverable and is deemed to be written off in the accounts. Section 31(3)(b) removes the need for an actual book write-off where the debt was already taken into income under the ICDS.

  1. ANot allowed because it was not written off in the accounts
  2. BAllowed in that year and deemed to be written off as irrecoverable in the accountsCorrect
  3. CAllowed only when finally recovered at less than the debt
  4. DAllowed only as a provision up to 5% of total income

Explanation

Section 31(3)(b) says such a bad debt is allowed as a deduction in the tax year it becomes irrecoverable and is deemed written off in the accounts for section 31(2). Hence non-recording in the books does not bar the deduction, and a provision is separately not a bad debt.

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