Other Income - Taxable even if irrecoverable

  • Income Tax
  • Financeseva

A severe debt, in simple terms, means a debt that cannot be recovered. Companies often find themselves in an uncomfortable position chasing debtors to recoup their debts. The pain can be double if you need to pay taxes on such debts that remain unrecoverable. 

In computing the income chargeable to tax under the head 'Profit and gains from business or profession', the Indian Income-tax law allows taxpayers to claim a deduction of bad debts that have been written off as irrecoverable in the accounts under Section 36(1)(vii) of the Income-tax Act, 1961 (IT Act).  

This principle is also enshrined in income under the head's 'Salaries', where withholding tax is applicable on the receipt basis. However, for computing income under the head 'Income from other sources', deductions can be availed only to the extent provided under Section 57 of the IT Act.