Comparison of Section 31 "Deduction for bad debt and provision for bad and doubtful debt" between the Income-Tax Act, 2025 (as passed) and the Income-Tax Bill, 2025 (as originally introduced)

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....fied classes of financial institutions and banks, conditions for write-off claims, and rules on a single provision account. The provision principally affects banking and financial-sector assessees and taxpayers engaged in money-lending; effective date or decision date: Not stated in the document. Background & Scope Statutory hooks: Clause 31 of the Income Tax Bill, 2025 (Profits and gains of business or profession). The clause addresses deductions in computing business/professional income for (i) provisions for bad and doubtful debts made by specified assessees and (ii) amounts of bad debt written off as irrecoverable. Coverage: The clause distinguishes classes of assessees-scheduled and non-scheduled banks, cooperative banks (with exclu....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....s of business or profession" for scheduled and non-scheduled banks. For foreign banks, public financial institutions, State Financial Corporations/Industrial Investment Corporations, and NBFCs the limit is "not more than 5% of the total income" computed similarly. * Sub-sections (2) and (3): Set out when amounts written off as irrecoverable are deductible, subject to conditions. Important ingredients include (a) previous inclusion in computing income or being money lent in ordinary course of banking/money-lending business; (b) recovery treatment where partial recovery occurs; and (c) for assessees claiming the sub-section (1) provision the deduction of written-off amounts is restricted to amounts exceeding the credit balance in the provis....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

.... only where disclosed under the specified head. * Deduction of written-off bad debts for assessees using the provision in sub-section (1) is confined to amounts exceeding the credit balance in the provision account and must correspond to debits to that same account in the tax year. Illustrations * Example 1: A scheduled bank with total income (pre-deduction) of INR 100 crore may claim a provision deduction up to INR 8.5 crore; if it has rural branches with aggregate average advances such that 10% of those advances equals INR 2 crore, it may additionally claim up to INR 2 crore as provided under the rural-branch head (subject to manner of computation prescribed). * Example 2: An NBFC with total income (pre-deduction) of INR 10 crore m....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....plicit about rule-making power. This is a drafting nuance rather than a substantive policy change. * Wording on allowance conditional on debiting provision account: The As Passed text (sub-section (2)(c)(ii)) specifies "such amount shall be allowed only when the assessee has debited any amount of bad debt or part thereof in that tax year to the provision for bad and doubtful debts account made under that sub-section." The Old Version (clause (2)(c)(ii)) states "it shall be allowed only when the assessee has debited such amount in that tax year to the provision for bad and doubtful debts account made under that sub-section." * Practical impact: The As Passed wording explicitly links the allowance to debiting "any amount of bad debt or pa....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....tive scope where "irrecoverable" is intended. * Minor introductory phrasing: The Old Version's heading to sub-section (3) reads "For the purposes of this sub-section (2)," while the As Passed reads "For the purposes of sub-section (2)," - a minor drafting harmonisation without substantive effect. Practical Implications * Compliance and risk areas: Financial institutions must maintain a single provision-for-bad-and-doubtful-debts account (covering all advances) and must ensure that debits to that account in the relevant tax year align with claimed deductions for written-off debts. Failure to maintain the single account or to debit the account appropriately may result in disallowance of write-off deductions. The elective additional a....