Question

Can include the next year recovery of bad debt in this taxable income?

bed debts of this year but will collect in next year.

Answer 1

A Deduction is allowed in for the debt related to business and profession if the same has become irrecoverable in the previous financial year. If the Loans lent by banking or money lending concerns are not able to recover the debts in full or part thereof, a deduction may be allowed.

If in any previous year, the debt has been written off as bad and the relevant deduction has also been claimed but later on the same debt is recovered in full or part, then the amount so recovered will be included as income of the financial year in which such amount has recovered.

If in any previous year, the assessee has written off a part of the debt and the said deduction was also allowed by the Assessing Officer and in future, some money is received from the debtors, then the amount so recovered will be treated as a normal realization of debts. If the amount recovered doesn’t exceed the expected, then the remaining amount will be treated as bad debts. If the amount received exceeds the recoverable amount, then the excess amount received will be treated as the income in the financial year of the receipt.