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TMI BlogTDS Implication on Expensing Off Unrecovered Invoice AmountX X X X Extracts X X X X X X X X Extracts X X X X ..... TDS Implication on Expensing Off Unrecovered Invoice Amount X X X X Extracts X X X X X X X X Extracts X X X X ..... companies are unrelated. However, Company B does not make any payment against this invoice. Eventually, Company A writes off the receivable amount as a bad debt. In such a case, is there any TDS implication for Company A when it expenses off the amount in its books? Regards, S Ram Reply By YAGAY andSUN: The Reply: In the situation described, there are no direct TDS (Tax Deducted at Source) im ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plications for Company A when it writes off the bad debt, as it does not involve a payment being made to an outside party that would typically trigger a TDS deduction. Here's a step-by-step breakdown: * Transaction Details: * Company A sells manufacturing scrap to Company B for Rs. 500, plus TCS (Tax Collected at Source) of Rs. 5, for a total of Rs. 505. * Company B, however, does not pay t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he invoice amount. * Writing off the Bad Debt: * Eventually, Company A writes off the receivable (Rs. 505) as a bad debt in its books. * A bad debt is generally written off when it becomes clear that the receivable will not be collected, and it is treated as an expense for accounting purposes. * TDS Applicability: * Under Section 194J of the Income Tax Act, TDS is applicable on payments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made for certain services or fees. However, since no payment is made in this case, TDS is not triggered. * The write-off of bad debt doesn't trigger TDS because no amount is being paid or deducted from Company B to Company A. Company A is simply recognizing that the receivable will not be collected. * TCS (Tax Collected at Source): * The TCS (Rs. 5) is collected by Company A at the time of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he sale of scrap, and it would have already been deposited with the government. No further TCS obligation arises when the bad debt is written off. * The TCS collection and deposit are separate from the issue of bad debt and do not affect the write-off. * Bad Debt and Tax Implications: * While Company A writes off the bad debt, it may claim a deduction for the bad debt written off, subject to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions under Section 36(1)(vii) of the Income Tax Act, which allows a deduction for bad debts if the debt is related to business income and written off in the books. * If Company A claims the bad debt as a deduction, it needs to ensure compliance with the provisions under Section 36(2), such as the debt having been included in the income of the previous year(s). Conclusion: * No TDS impl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ication arises for Company A when it writes off the bad debt because no actual payment is being made or deducted. * However, Company A can potentially claim the bad debt as a deduction under the provisions related to business income. If Company A has any further concerns regarding the treatment of TCS or any other aspect, it's advisable to consult a tax professional for detailed guidance tailor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to their specific circumstances. X X X X Extracts X X X X X X X X Extracts X X X X
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