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of <h1>Clarification on Bad Debt Provisions: Banks Can Deduct Both Urban and Rural Bad Debts u/s 36(1)(viia.</h1> The circular addresses the deduction for provisions for bad and doubtful debts made by banks under the Income Tax Act, 1961. It clarifies that Section 36(1)(viia) allows banks a deduction of up to 5% of total income and 2% of rural branch advances for such provisions. Prior to April 1, 1987, the deduction was higher. It corrects a misconception that only rural branch debts need to be set off against the provision, stating that both urban and rural branch bad debts should be set off against the provision allowed under Section 36(1)(viia). Completed assessments should be reviewed accordingly.
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