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of <h1>Income Tax Act: Section 36(1)(viia) Allows Banks Deductions for Bad Debts; Different Rates for Indian and Foreign Banks.</h1> Section 36(1)(viia) of the Income Tax Act provides deductions for banks on provisions for bad and doubtful debts. Indian scheduled banks can deduct 8.5% of total income plus 10% of aggregate average advances from rural branches. Public financial institutions, state financial corporations, and non-banking financial companies can deduct 5% of total income. Foreign banks also have a 5% deduction. Actual bad debts must be debited to the provision account, with excesses over the credit balance deductible under section 36(1)(vii). Rural branches are defined as those in areas with populations under 10,000. Sections 36(1)(vii) and 36(1)(viia) function independently.
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