Deduction for provision on standard assets is available to a scheduled bank when RBI norms and statutory limits are met.

A scheduled bank may claim deduction for provision made toward standard assets under Section 36(1)(viia) where the provision is created in accordance with RBI prudential norms and remains within the statutory ceiling. The provision for bad and doubtful debts is intended to support banking stability and rural credit through prudential provisioning, and standard assets are not excluded by the statutory language. Since RBI norms treat standard assets as carrying inherent credit risk and requiring general provisioning, such amounts fall within the banking risk-management framework contemplated by the deduction.

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Issues: Whether a scheduled bank is entitled to deduction under Section 36(1)(viia) of the Income-tax Act, 1961 in respect of provision made for standard assets, where such provision is created in accordance with RBI prudential norms and remains within the statutory ceiling.

Analysis: Section 36(1)(viia) allows deduction for provision for bad and doubtful debts, and the provision is meant to support banking stability and rural credit by permitting prudential provisioning. The provision is to be read with the banking regulatory framework, under which even standard assets carry inherent credit risk and require general provisioning. The statutory language does not carve out standard assets for exclusion, and the only substantive requirements are that the provision must be made by the eligible bank in its books and must remain within the prescribed monetary limits. The RBI framework mandating provision on standard assets reinforces that such provisioning is part of the banking risk-management architecture contemplated by the deduction.

Conclusion: Deduction under Section 36(1)(viia) is allowable in respect of provision made for standard assets, subject to the statutory ceiling and compliance with RBI-guided provisioning norms.

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