Section 43D of ITA, 1961 : Section 43D: Special Provision In Case Of Income Of Public Financial Institutions, Public Companies, Etc

Explanation using Example

Imagine a scheduled bank has a loan on its books that has not been repaid and is considered a bad debt. According to the guidelines from the Reserve Bank of India, this debt is categorized as doubtful. Under Section 43D of the Income-tax Act, 1961, the bank is allowed to recognize the interest income from this bad debt in the fiscal year it adds the interest to its profit and loss account or in the year it actually receives the payment, whichever comes first. This means the bank will pay taxes on the interest income from the bad debt in that particular year, even if it is unsure whether it will ever collect the money.