A bad debt write-off is the accounting entry that removes an irrecoverable receivable and charges it to profit and loss. Under Section 36(1)(vii) of the Income-tax Act, 1961, a business can deduct a debt actually written off as irrecoverable in its accounts, provided the amount was earlier offered as income. Writing off does not extinguish the claim: the supplier can still recover it within the limitation period, and any later recovery is taxed.
How a write-off works in India
The accountant passes a journal entry debiting bad debts and crediting the customer account, usually at year end after management approval. Companies record the reason in board or management minutes. For tax years governed by the new Income-tax Act, 2025, check the corresponding provision with your chartered accountant; the principle of deducting debts written off is carried forward.
A write-off is internal. The buyer is not told, the ledger confirmation it signed earlier remains valid, and the 3-year limitation period keeps running from the due date or the last acknowledgement.
Why it matters for getting paid
Too many suppliers treat the write-off as the end. In reality it only recovers the tax on the loss, while the full amount is still legally due. Because GST was already paid and there is no relief, the real loss is larger than the invoice value suggests. A write-off should come after a legal notice and a realistic assessment, not instead of them. See bad debt recovery.
How FundRaksha uses it
FundRaksha regularly takes on dues that clients have already written off, provided limitation has not expired. The advocate rebuilds the claim from invoices, delivery proof and the ledger, and sends a notice within 24 hours. There is nothing to pay upfront: the fee is 30% of what is recovered, and 700+ businesses have been paid so far. A free consultation checks whether a written-off debt is still recoverable.
Worked example (hypothetical)
A Kolkata printing firm writes off ₹8,00,000 owed by a publisher in its accounts for the year. Assuming a 25% tax rate, the deduction saves ₹2,00,000 of tax, so the net loss is ₹6,00,000. Eighteen months later, still within limitation, the firm sends a legal notice and the publisher settles the full ₹8,00,000. The firm offers ₹8,00,000 as income in the year of recovery and pays ₹2,00,000 tax at the same assumed rate, keeping ₹6,00,000 it had given up for lost.
Last reviewed: 2026-10-08. Information for Indian businesses; not legal advice.