Manual - Introduction - Income computation and disclosure standards (ICDS)

It may happen and an income is recognized as per ICDS but not as per normal accounting standards (AS)  or accounting policies. And finally such income is found as non-recoverable and bad debts. To address this situation, Finance Act, 2016 has inserted second proviso to section 36(1)(vii) which reads as under:

“Provided further that where the amount of such debt or part thereof has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof becomes irrecoverable or of an earlier previous year on the basisof income computation and disclosure standards notified under subsection (2) of section without recording the same in the accounts, then, such debt or part thereof shall be allowed in the previous year in which such debt or part thereof becomes irrecoverable and it shall be deemed that such debt or part thereof has been written off as irrecoverable in the accounts for the purposes of this clause.”

 

Deduction for bad debts allowed where income recognised under ICDS but not recorded in accounts is later irrecoverable. Where a debt included in income on the basis of Income Computation and Disclosure Standards but not recorded in the accounts becomes irrecoverable, Finance Act, 2016 permits the debt (or part) to be allowed as a deduction in the year it becomes irrecoverable and deems that the debt has been written off in the accounts for the purposes of the deduction.