A debt written off in your books remains legally due if it is within limitation (three years from due date, restarted by acknowledgement or part-payment) and the buyer exists and has assets. FundRaksha reviews written-off ledgers for free, identifies recoverable debts, sends a notice within 24 hours and pursues them through MSME Samadhaan, Section 138 or a summary suit. The fee is 30% of what is recovered; there is no cost for debts that prove unrecoverable.
Why businesses write off debts that are still recoverable
Debts are written off at year end on the auditor's prompting, by people who have not tried to recover them and do not know whether they can be. Common reasons: "the buyer stopped responding", "the buyer closed", "it is too old", "legal action is too expensive". Each of these is tested by a different question. Did the buyer stop responding to you, or to an advocate? Did the buyer close, or did the proprietor move to a new shop? Is it too old under the Limitation Act, or just older than the finance team likes? Is legal action expensive, or does it cost nothing until recovery?
When these questions are asked properly, a meaningful share of written-off ledgers turns out to be recoverable.
The three tests of a recoverable bad debt
- Within limitation. Three years from due date, or from the buyer's last written acknowledgement or part-payment. For MSME suppliers, Samadhaan may remain open beyond this. See old debt recovery.
- Debtor exists and is traceable. A company can be traced through the MCA register, its GSTIN and its directors. A proprietor is personally liable and can be traced through GST, bank and cheque records. Only a company dissolved after liquidation is truly gone.
- Debtor has means. Active GST filings, a running business, property or receivables. A check on FundRaksha Trust answers this quickly.
Debts that pass all three are pursued. Debts that fail are reported back to you honestly, with the reason, so the write-off can stand with confidence.
How FundRaksha recovers bad debts
- Free ledger review. Send the written-off list with invoice dates, amounts, buyer details and any correspondence. We apply the three tests.
- Notice within 24 hours on recoverable debts, with a statement of account designed to draw acknowledgement where limitation is close.
- Negotiation. Buyers who thought the debt was forgotten often settle quickly when it reappears with interest.
- Filing where needed: Section 138 if old cheques exist and are within validity or can be re-presented, Samadhaan for MSME suppliers, summary suit otherwise.
- Execution against bank accounts, receivables and property.
Fee: 30% of what is recovered. No retainer, no review fee, no charge for debts that prove unrecoverable. Court fees, where a suit is filed, are quoted before filing and you decide.
Tax and accounting notes
| Event | Treatment |
|---|---|
| Debt written off and claimed as deduction | Allowed under s.36(1)(vii) if written off in the books |
| Written-off debt later recovered | Taxable as business income in the year of recovery, s.41(4) |
| GST on the unpaid invoice | Supplier's GST liability already discharged; no refund for bad debt under GST law |
| Buyer's side | Buyer must reverse ITC on invoices unpaid after 180 days; this is leverage in the notice |
None of this changes the decision to recover: income tax on recovered money is a good problem to have. Discuss specifics with your accountant.
Bring the write-off list
The best time to review bad debts is before the year-end audit, so that recoverable items are pursued rather than written off, and already written-off items are revisited. Book a free consultation and send the list; many businesses recover more than they expected. Related reading: accounts receivable collection for preventing the next write-off, trade debt recovery for dealer and trader debts, and the best recovery company for small business guide.
Last reviewed: 2026-10-08. Information for Indian businesses; not legal advice.