1) Book 30 lacs as income and claim 27 lacs as bad debts if you are sure. Keep all the legal documents intact for future reference.
2) Total income would be 44 lacs less bad debts of RS. 27 lacs so net profit would be 17 lacs.
Calculating profit - guidance required
Dear Sir We are a small strategic consuting firm with clients in Europe . We have a scenario where in a transaction (transaction 1) we received fee our client amounting to approximately 14 lakh however on another transaction ( transaction 2)with the same client where we invoiced them for 30 lakh but our client refused to pay after accepting the invoice and paying initial 3 lakh We have sent them legal notice and our lawyer is working on the case for balance 27 lakh Both transaction 1 and transaction 2 happened in the same financial year , for transaction 1 we were paid fee 14 lakh in the bank but for dues for transaction 2 we have received 3 lakh against 30 lakh and are not sure if we will receive the balance 27 lakh as the client has refused to pay this invoice We have no other income in the FY , Q) Will the unpaid invoice from client treated as loss as the client has refused to pay fee and we are unsure if this will be paid QWhat would be my net profit loss for FY based on transaction 1 and 2
Asked 7 years ago in Income Tax
Hi,
1. If you are certain that the collectibility of 27 lakhs is at risk, you can make a provision for bad debts for the said 27 lakhs.
2. Your total income for the year will be 44 lakhs. Bad debts are 27 lakhs. You can reduce other expenses which are part of the business expenses and get the net profit from business. In absence of any other expense your profit for the year will be 17 lakhs.
Regards,
Nikhil.
Hi
Being unsure won't help reducing tax liability. Since you are working for recovery, you can't write it off as bad debts. So, tax has to be paid even if the payment is yet to be realised.
Basically you have 2 options:
1. Pay taxes considering 44 lakhs as income
Or
2. Write off 27 lakhs as bad debts in your books of accounts, and pay taxes considering 17 lakhs as income. Please note that writing off as bad debts means you are sure that the payment won't be received now.
Hi
1 no unpaid part is not loss , if you are considering the same as bed debts then might be in your legal case you may loose , thus show the same as debtors and in notes to Accounts mention about case for recovery
2 you have only provide income details thus unable to calculate your profit
Your profit is income less all expenses of business
1. Yes, it can be treated as bad debts.
2. Your profit will be revenue (54 lacs) minus bad debts (27lacs) minus other expenses.
Please feel free to call/ revert in case you need more clarity.
Thanks and regards
Abhishek Dugar
CA CS B.Com
As you are working for its recovery,it cannot be treated as Baddebts. But yes provision can be made for it.
In that case your income will be 44 lacs. And 27 lacs will be booked as provisions so net amount will be 44 -27=17 lacs.
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