Section 31 — Deduction for bad debt and provision for bad and doubtful debt

(1) The amount mentioned in column C of the Table below, in respect of any
provision for bad and doubtful debts made by the assessee specified in
column B thereof, shall be allowed as a deduction in computation of income charge-
able under section 26.
TABLE
Sl.
No.
Specified assessee Amount of deduction
A B C
1. ( a) A scheduled bank, other
than a bank incorporated
by or under the laws of a
country outside India; or
( b) a non-scheduled bank; or
( c) a co-operative bank, other
than—
( i) a primary agricultur-
al credit society; or
( ii) a primary co-opera-
tive agricultural and
rural development
bank.
( a) not more than 8.5% of the total
income of the tax year computed
before making any deduction under
this clause and Chapter VIII, and
an additional amount up to 10%
of the aggregate average advances
made by rural branches computed
in the manner as may be prescribed;
( b) for an assessee mentioned in clauses
(a) and (b) of column B, at its option,
an additional amount in excess of
clause (a) of this column but not more
than the income from redemption of
securities as per a scheme framed by
the Central Government, when such
income has been disclosed in the
return of income under the head
“Profits and gains of business or
profession”.
2. ( a) A bank incorporated by or
under the laws of a country
outside India; or
( b) a public financial institu -
tion or a State Financial
Corporation or a State
Industrial Investment
Corporation; or
( c) a non-banking financial
company.
Not more than 5% of the total income of
a tax year computed before making any
deduction under this clause and Chapter
VIII.
(2) Any amount of bad debt, or part of it, in the tax year in which such amount
is written off as irrecoverable in the accounts of the assessee, shall be allowed as
deduction in computation of income chargeable under section 26, subject to the
following conditions:—
( a) it has been taken into account in computing the income of the assessee
of the tax year in which it is written off, or any earlier tax year, or repre-
sents the money lent in the ordinary course of the business of banking
or money lending which is carried on by the assessee;
( b) if the amount ultimately recovered on any such debt or part of debt is
less than the difference between the debt or part and the amount so
deducted, the deficiency shall be deductible in the tax year in which the
ultimate recovery is made; and
( c) where it relates to an assessee to which sub-section (1) applies,—
( i) only that amount which exceeds the credit balance in the provision
for bad and doubtful debts account made under that sub-section
shall be allowed as deduction;
( ii) 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;
and
( iii) the aforesaid account shall be only one such account under sub-sec-
tion (1) and such account shall be related to all types of advances,
including advances made by rural branches.
(3) For the purposes of sub-section (2),—
( a) any bad debt or part of it written off as irrecoverable shall not include
any provision for bad and doubtful debt;
( b) any amount of bad debt or part of it, which has been taken into account
in computing the income of the assessee of the tax year in which the
amount of bad debt or part of it becomes irrecoverable or of an earlier
tax year as per income computation and disclosure standards notified
under section 276(2) without recording it in the accounts, shall be
allowed as a deduction in computing the income of the assessee of the
tax year in which it becomes irrecoverable and such bad debt or part of
it shall be deemed to be written off as irrecoverable in the accounts for
the purposes of sub-section (2).