Section 29: Bad debts

29. Bad debts.— (1) A person shall be allowed a deduction for a bad debt in a tax year if the following conditions are satisfied, namely:— (a) the amount of the debt was – (i) previously included in the person’s income from business chargeable to tax; or (ii) in respect of money lent by a financial institution in deriving income from business chargeable to tax; (b) the debt or part of the debt is written off in the accounts of the person in the tax year; and (c) there are reasonable grounds for believing that the debt is irrecoverable. (2) The amount of the deduction allowed to a person under this section for a tax year shall not exceed the amount of the debt written off in the accounts of the person in the tax year. (3) Where a person has been allowed a deduction in a tax year for a bad debt and in a subsequent tax year the person receives in cash or kind any amount in respect of that debt, the following rules shall apply, namely:– (a) where the amount received exceeds the difference between the whole of such bad debt and the amount previously allowed as a deduction under this section, the excess shall be included in the person’s income under the head “Income from Business” for the tax year in which it was received; or (b) where the amount received is less than the difference between the whole of such bad debt and the amount allowed as a deduction under this section, the shortfall shall be allowed as a bad debt deduction in computing the person’s income under the head “Income from Business” for the tax year in which it was received.

Effective date: 2001-09-13

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