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What is the difference between Bad debts and bad & doubtful debts. What are the legal compliances for the provisions for doubtful debts and bad debts recovered after being written off.
Asked by Suneha Sharma Last Modified
Answer 
Bad debts refers to that amount which is not collected from debtors. Whereas bad debts and doubtful debts belongs to that ESTIMATED amount which is not recovered from debtors in FUTURE.
ON THE BASIS OF THAT WHICH IS MENTIONED ABOVE,DIFFERENCE WILL BE..
1) BAD DEBTS occurs in the PAST but DOUBTFUL DEBTS it is not so.
2) BAD DEBTS is reduced from debtors ALWAYS, but provision for doubtful debts may be shown in the LIABILITIES side of BALANCESHEET.
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Chandra Prakash
Bad Debt is a debt which is not collectible and is worthless to the Creditor. It is usually a product of the debtor which has gone for bankruptcy.
As per section 36(1)(Viia) of the Income Tax Act, 1961 only banks and financial institutions are allowed deduction in respect of the provisions made for bad and doubtful debts. No other assessee is allowed to claim the deduction on the provision of bad debts. The limits on which the deduction is allowed to the banks and financial institutions are:
| Bank Type | Deduction Allowed | Explanation |
| Indian Banks | 7.5% of adjusted total income
+ 10% of average aggregate advances made by rural branches | Indian Bank means any bank which is not a foreign bank and is a banking company incorporated in India. Adjusted Total Income – Gross total income before deduction under the section 36(1)(viia). Average aggregate advances (Note below) |
| Foreign Banks | 5% of adjusted total income | Adjusted Total Income – Gross total income before deduction under the section 36(1)(viia). |
| Public Financial Institution, State Financial Corporation | 5% of adjusted total income | Adjusted Total Income – Gross total income before deduction under the section 36(1)(viia). |
Note: Average aggregate advances can be computed in following steps:
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