Bad Debt

Income Tax Act, 1961 — Section 36(1)(vii); RBI IRACP Norms

A loan or receivable that is unlikely to be recovered and is written off as a loss by the creditor. Under the Income Tax Act, banks can claim deduction for bad debts written off in their accounts. Under RBI norms, accounts classified as "Loss Assets" are treated as bad debts. A bank writing off a debt does not extinguish the legal liability of the borrower — the bank retains its right to sue.