My client is a bank and has stopped accruing interest on non-performing accounts under RBI norms, but the Assessing Officer has added the interest on the mercantile basis. Is there a provision that displaces accrual?
Yes. Section 43D opens "Notwithstanding anything to the contrary contained in any other provision of this Act" and provides that, for the institutions it names, income by way of interest in relation to such categories of bad or doubtful debts as may be PRESCRIBED — having regard to the guidelines issued by the Reserve Bank of India — is chargeable to tax in the previous year in which it is credited to the profit and loss account, or in which it is actually received, whichever is earlier. It therefore displaces the accrual basis for that interest and nothing else. The institutions named on the current departmental edition are a public financial institution, a scheduled bank, a co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank, a State financial corporation, a State industrial investment corporation, and "such class of non-banking financial companies as may be notified by the Central Government in the Official Gazette in this behalf". The prescribed categories are in Rule 6EA of the Income-tax Rules, 1962.
Decided by the CBDT Circulars & Instructions (Not applicable — statutory text), reported as Income-tax Act, 1961, s.43D, as printed on the departmental Year 2025 edition (incometaxindia.gov.in/w/section-43d-34) and the Year 2024 (No. 2) edition (/w/section-43d-33); earlier forms from the Year 2023 edition (/w/section-43d-31), the Year 2019 (No. 2) edition (/w/section-43d-28) and the Year 2009 edition (/w/section-43d). Rules 6EA and 6EB as printed at incometaxindia.gov.in/w/rule-6ea and /w/rule-6eb. The co-operative bank limb was inserted by section 18 of the Finance Act, 2017 with effect from 1 April 2018.. It bears on section 43D, section Rule 6EA, section Rule 6EB, section 36(1)(vii), section 36(1)(viia), section 43B, section 80P(4), section 145 of the Income Tax Act 1961, in Deductions & Disallowances, How Tax Law Is Read and Assessment & Scrutiny matters.
This is a real cash-flow relief and it is regularly missed. Three cautions. First, section 43D does not sanction the RBI's income-recognition norms as such: it works only on the categories PRESCRIBED by rule, so the argument has to be run through Rule 6EA and not through the RBI circular. That is the point on which the Supreme Court's decision in Southern Technologies, already in this library, turned the other way for a provision claimed under s.36(1)(vii). Second, the relief is limited to income BY WAY OF INTEREST; it does not defer anything else. Third, the class of assessee has moved twice in recent years and the current position is conditional. The Finance Act, 2017 inserted the co-operative bank limb with effect from 1 April 2018. The departmental Year 2019 (No. 2) and Year 2023 editions then name "a deposit taking non-banking financial company or a systemically important non-deposit taking non-banking financial company". The Year 2024 (No. 2) and Year 2025 editions replace those words with "such class of non-banking financial companies as may be notified by the Central Government in the Official Gazette in this behalf" — so on the current text an NBFC is inside section 43D only if it falls within a class the Central Government has notified, and NO such notification was located on this pass. An NBFC relying on s.43D for a current year must find the notification before it does so. Note also that clause (b) — the public-company/National Housing Bank limb, to which Rule 6EB attaches — is printed as omitted on the Year 2025 edition, so a housing finance public company can no longer take the section on that footing. Two dates decide which text applies. For assessment years 2020-21 to 2023-24 the NBFC limb named a deposit-taking NBFC or a systemically important non-deposit-taking NBFC (Finance (No. 2) Act, 2019, w.e.f. 1 April 2020). From assessment year 2024-25 those words are gone and the limb reaches only such class of NBFCs as the Central Government notifies (Finance Act, 2023, w.e.f. 1 April 2024). From assessment year 2025-26 the public-company / National Housing Bank limb in clause (b) is omitted altogether (Finance (No. 2) Act, 2024, w.e.f. 1 April 2025), so a housing finance company that has been offering interest on receipt under clause (b) must move to accrual from that year unless some other provision saves it — and Rule 6EB, which prescribed the categories for that limb, is left attached to nothing.
Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them.
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Section 43D opens: "Notwithstanding anything to the contrary contained in any other provision of this Act,—". Clause (a), on the Year 2025 and Year 2024 (No. 2) editions, covers "a public financial institution or a scheduled bank or a co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank or a State financial corporation or a State industrial investment corporation or such class of non-banking financial companies as may be notified by the Central Government in the Official Gazette in this behalf", and applies to "the income by way of interest in relation to such categories of bad or doubtful debts as may be prescribed having regard to the guidelines issued by the Reserve Bank of India in relation to such debts". Clause (b), which on the Year 2024 (No. 2) and earlier editions covered a public company and interest on categories prescribed having regard to guidelines issued by the National Housing Bank, is printed as "[***]" on the Year 2025 edition. The closing words provide that such income "shall be chargeable to tax in the previous year in which it is credited by" the named institution "to its profit and loss account for that year or, as the case may be, in which it is actually received by that institution or bank or corporation or company, whichever is earlier." The Explanation defines "public financial institution" (s.4A of the Companies Act, 1956), "scheduled bank" (clause (ii) of the Explanation to s.36(1)(viia)), "State financial corporation", "State industrial investment corporation", "co-operative bank", "primary agricultural credit society" and "primary co-operative agricultural and rural development bank" (Explanation to s.80P(4)), and "non-banking financial company" (clause (vii) of the Explanation to s.36(1)(viia)). Rule 6EA, headed "Special provision regarding interest on bad and doubtful debts of financial institutions, banks, etc.", prescribes the categories: (a)(i) non-viable or sticky advances, defined by irregularities of the nature in sub-clause (ii) noticed for six months or more with no minimum prospect of regularisation, or accounts showing listed signs of sickness (fourteen are listed, from apparent stagnation in business to continued cash loss beyond one year), sub-clause (ii) listing the irregularities; (b) advances recalled, where repayment is highly doubtful and a decision has been taken to recall; (c) suit-filed accounts; (d) decreed debts pending execution; and (e) debts whose recoverability has become doubtful on account of shortfall in the value of security, difficulty in enforcing and realising the securities, or the borrower's inability or unwillingness to repay, not covered by (a) to (d). Rule 6EB, headed "Categories of bad or doubtful debts in the case of a public company under clause (b) of section 43D", prescribes (a) a doubtful asset, being a debt that has remained a non-performing asset of the specified kind for more than two years, with the non-performing asset defined by six-month tests for term loans, lease rentals or hire purchase instalments, bills purchased or discounted and other short-term facilities, and (b) a loss asset identified as loss and considered uncollectible but not written off; and its Explanation deems an amount to be "past due" when it remains unpaid for thirty days beyond the due date.
Not applicable — this entry states statutory text, not a holding.
Not applicable — this entry states statutory text, not a court's reasoning. On legislative history, section 18 of the Finance Act, 2017 provides that in section 43D of the Income-tax Act, with effect from the 1st day of April, 2018, in clause (a) and in the long line, after the words "scheduled bank or", the words "a co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank or" shall be inserted, and after clause (f) of the Explanation a new clause (g) shall be inserted picking up those expressions from the Explanation to section 80P(4).
shall be chargeable to tax in the previous year in which it is credited by the public financial institution or the scheduled bank or a co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank or the State financial corporation or the State industrial investment corporation or such class of non-banking financial companies as may be notified by the Central Government in the Official Gazette in this behalf, [***] to its profit and loss account for that year or, as the case may be, in which it is actually received by that institution or bank or corporation or company, whichever is earlier.
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Handle my notice → Ask a CA on WhatsAppYes. Section 43D opens "Notwithstanding anything to the contrary contained in any other provision of this Act" and provides that, for the institutions it names, income by way of interest in relation to such categories of bad or doubtful debts as may be PRESCRIBED — having regard to the guidelines issued by the Reserve Bank of India — is chargeable to tax in the previous year in which it is credited to the profit and loss account, or in which it is actually received, whichever is earlier. It therefore displaces the accrual basis for that interest and nothing else. The institutions named on the current departmental edition are a public financial institution, a scheduled bank, a co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank, a State financial corporation, a State industrial investment corporation, and "such class of non-banking financial companies as may be notified by the Central Government in the Official Gazette in this behalf". The prescribed categories are in Rule 6EA of the Income-tax Rules, 1962. This was decided by the CBDT Circulars & Instructions (Not applicable — statutory text) and bears on section 43D, section Rule 6EA, section Rule 6EB, section 36(1)(vii), section 36(1)(viia), section 43B, section 80P(4), section 145 of the Income Tax Act 1961. It is reported as Income-tax Act, 1961, s.43D, as printed on the departmental Year 2025 edition (incometaxindia.gov.in/w/section-43d-34) and the Year 2024 (No. 2) edition (/w/section-43d-33); earlier forms from the Year 2023 edition (/w/section-43d-31), the Year 2019 (No. 2) edition (/w/section-43d-28) and the Year 2009 edition (/w/section-43d). Rules 6EA and 6EB as printed at incometaxindia.gov.in/w/rule-6ea and /w/rule-6eb. The co-operative bank limb was inserted by section 18 of the Finance Act, 2017 with effect from 1 April 2018.. This is a real cash-flow relief and it is regularly missed. Three cautions. First, section 43D does not sanction the RBI's income-recognition norms as such: it works only on the categories PRESCRIBED by rule, so the argument has to be run through Rule 6EA and not through the RBI circular. That is the point on which the Supreme Court's decision in Southern Technologies, already in this library, turned the other way for a provision claimed under s.36(1)(vii). Second, the relief is limited to income BY WAY OF INTEREST; it does not defer anything else. Third, the class of assessee has moved twice in recent years and the current position is conditional. The Finance Act, 2017 inserted the co-operative bank limb with effect from 1 April 2018. The departmental Year 2019 (No. 2) and Year 2023 editions then name "a deposit taking non-banking financial company or a systemically important non-deposit taking non-banking financial company". The Year 2024 (No. 2) and Year 2025 editions replace those words with "such class of non-banking financial companies as may be notified by the Central Government in the Official Gazette in this behalf" — so on the current text an NBFC is inside section 43D only if it falls within a class the Central Government has notified, and NO such notification was located on this pass. An NBFC relying on s.43D for a current year must find the notification before it does so. Note also that clause (b) — the public-company/National Housing Bank limb, to which Rule 6EB attaches — is printed as omitted on the Year 2025 edition, so a housing finance public company can no longer take the section on that footing. Two dates decide which text applies. For assessment years 2020-21 to 2023-24 the NBFC limb named a deposit-taking NBFC or a systemically important non-deposit-taking NBFC (Finance (No. 2) Act, 2019, w.e.f. 1 April 2020). From assessment year 2024-25 those words are gone and the limb reaches only such class of NBFCs as the Central Government notifies (Finance Act, 2023, w.e.f. 1 April 2024). From assessment year 2025-26 the public-company / National Housing Bank limb in clause (b) is omitted altogether (Finance (No. 2) Act, 2024, w.e.f. 1 April 2025), so a housing finance company that has been offering interest on receipt under clause (b) must move to accrual from that year unless some other provision saves it — and Rule 6EB, which prescribed the categories for that limb, is left attached to nothing. If it applies to you, the first step is this: Confirm your client is one of the institutions named in clause (a) on the edition of the section that governs the assessment year in dispute; the list is different in 2018, in 2020 and in 2025.
Section 43D opens: "Notwithstanding anything to the contrary contained in any other provision of this Act,—". Clause (a), on the Year 2025 and Year 2024 (No. 2) editions, covers "a public financial institution or a scheduled bank or a co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank or a State financial corporation or a State industrial investment corporation or such class of non-banking financial companies as may be notified by the Central Government in the Official Gazette in this behalf", and applies to "the income by way of interest in relation to such categories of bad or doubtful debts as may be prescribed having regard to the guidelines issued by the Reserve Bank of India in relation to such debts". Clause (b), which on the Year 2024 (No. 2) and earlier editions covered a public company and interest on categories prescribed having regard to guidelines issued by the National Housing Bank, is printed as "[***]" on the Year 2025 edition. The closing words provide that such income "shall be chargeable to tax in the previous year in which it is credited by" the named institution "to its profit and loss account for that year or, as the case may be, in which it is actually received by that institution or bank or corporation or company, whichever is earlier." The Explanation defines "public financial institution" (s.4A of the Companies Act, 1956), "scheduled bank" (clause (ii) of the Explanation to s.36(1)(viia)), "State financial corporation", "State industrial investment corporation", "co-operative bank", "primary agricultural credit society" and "primary co-operative agricultural and rural development bank" (Explanation to s.80P(4)), and "non-banking financial company" (clause (vii) of the Explanation to s.36(1)(viia)). Rule 6EA, headed "Special provision regarding interest on bad and doubtful debts of financial institutions, banks, etc.", prescribes the categories: (a)(i) non-viable or sticky advances, defined by irregularities of the nature in sub-clause (ii) noticed for six months or more with no minimum prospect of regularisation, or accounts showing listed signs of sickness (fourteen are listed, from apparent stagnation in business to continued cash loss beyond one year), sub-clause (ii) listing the irregularities; (b) advances recalled, where repayment is highly doubtful and a decision has been taken to recall; (c) suit-filed accounts; (d) decreed debts pending execution; and (e) debts whose recoverability has become doubtful on account of shortfall in the value of security, difficulty in enforcing and realising the securities, or the borrower's inability or unwillingness to repay, not covered by (a) to (d). Rule 6EB, headed "Categories of bad or doubtful debts in the case of a public company under clause (b) of section 43D", prescribes (a) a doubtful asset, being a debt that has remained a non-performing asset of the specified kind for more than two years, with the non-performing asset defined by six-month tests for term loans, lease rentals or hire purchase instalments, bills purchased or discounted and other short-term facilities, and (b) a loss asset identified as loss and considered uncollectible but not written off; and its Explanation deems an amount to be "past due" when it remains unpaid for thirty days beyond the due date. It was decided by the CBDT Circulars & Instructions (Not applicable — statutory text). On those facts the CBDT Circulars & Instructions held as follows. Not applicable — this entry states statutory text, not a holding.
Not applicable — this entry states statutory text, not a court's reasoning. On legislative history, section 18 of the Finance Act, 2017 provides that in section 43D of the Income-tax Act, with effect from the 1st day of April, 2018, in clause (a) and in the long line, after the words "scheduled bank or", the words "a co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank or" shall be inserted, and after clause (f) of the Explanation a new clause (g) shall be inserted picking up those expressions from the Explanation to section 80P(4). In the words reproduced by the source cited on this page: "shall be chargeable to tax in the previous year in which it is credited by the public financial institution or the scheduled bank or a co-operative bank other than a primary agricultural credit society or a primary co-operative agricultural and rural development bank or the State financial corporation or the State industrial investment corporation or such class of non-banking financial companies as may be notified by the Central Government in the Official Gazette in this behalf, [***] to its profit and loss account for that year or, as the case may be, in which it is actually received by that institution or bank or corporation or company, whichever is earlier."
It was decided by the CBDT Circulars & Instructions and is reported as Income-tax Act, 1961, s.43D, as printed on the departmental Year 2025 edition (incometaxindia.gov.in/w/section-43d-34) and the Year 2024 (No. 2) edition (/w/section-43d-33); earlier forms from the Year 2023 edition (/w/section-43d-31), the Year 2019 (No. 2) edition (/w/section-43d-28) and the Year 2009 edition (/w/section-43d). Rules 6EA and 6EB as printed at incometaxindia.gov.in/w/rule-6ea and /w/rule-6eb. The co-operative bank limb was inserted by section 18 of the Finance Act, 2017 with effect from 1 April 2018.. Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them. A CBDT circular or instruction binds officers of the department but not the assessee and not the courts. Where a circular helps you, you may hold the department to it. Where it hurts you, it cannot override the Act or a judgment. On section 43D, section Rule 6EA, section Rule 6EB, section 36(1)(vii), section 36(1)(viia), section 43B, section 80P(4), section 145, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. Not applicable — this entry states statutory text, not a holding. It arises in Deductions & Disallowances, How Tax Law Is Read and Assessment & Scrutiny matters, on section 43D, section Rule 6EA, section Rule 6EB, section 36(1)(vii), section 36(1)(viia), section 43B, section 80P(4), section 145 of the Income Tax Act 1961, and was decided by Not applicable — statutory text. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. If the client is an NBFC and the year is governed by the current text, look for the Central Government notification specifying the class of non-banking financial companies. Without it the section does not reach the company. Take the interest through Rule 6EA and show, account by account, which prescribed category the debt falls in — non-viable or sticky advance, advance recalled, suit-filed account, decreed debt, or a debt doubtful because of shortfall in security or the borrower's inability or unwillingness to pay. Frame the charge correctly: the interest is taxable in the year it is credited to the profit and loss account OR the year it is actually received, whichever is EARLIER. Crediting a suspense or interest-suspense account and then transferring it to profit and loss in a later year does not push the charge back. Do not argue s.43D for anything other than income by way of interest, and do not argue it as an endorsement of the RBI's income-recognition norms generally. For a housing finance public company, check whether the year in dispute is one in which clause (b) and Rule 6EB were still available.
Still good law. The current text was read on two departmental editions, Year 2025 and Year 2024 (No. 2), which agree on the whole of clause (a), on the closing words and on Explanation clauses (c) to (h); they differ only in that the Year 2025 edition prints clause (b) and Explanation clauses (a) and (b) as omitted. That difference is dated by the amendment-footnote lists on both editions, which agree that the omission was made by Act No. 15 of 2024 (the Finance (No. 2) Act, 2024) with effect from 1 April 2025. The label 'good law' describes the text as it stands for assessment year 2025-26 onwards; for earlier years the entry sets out which limb applied and from when. I did not check judicial treatment of s.43D beyond Southern Technologies, which the library already holds. A reader arguing a current year should treat the availability of s.43D to an NBFC as conditional on a Central Government notification that I could not find. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
Two things a reader should treat with care. First, the departmental Year 2025 edition of s.43D (/w/section-43d-34) prints clause (b), Explanation clauses (a) and (b), the words "public companies," in the section heading and the words "or the public company" in the closing line as "[***]", the departmental convention for omitted text, while the Year 2024 (No. 2) edition (/w/section-43d-33) still prints them. All of those omissions were made by Act No. 15 of 2024 — the Finance (No. 2) Act, 2024 — with effect from 1 April 2025, on the amendment-footnote lists of both editions, which agree: the Year 2025 page reads "23. Words 'public companies,' omtt. by Act No. 15 of 2024, w.e.f. 1-4-2025", "25. Omtt. by Act No. 15 of 2024, w.e.f. 1-4-2025" and "26. Words 'or the public company' omtt. ibid.", and the Year 2024 (No. 2) page reads "36. Clause (b) shall be omitted by the Act No. 15 of 2024, w.e.f. 1-4-2025" and "39. Clauses (a) and (b) shall be omitted by the Act No. 15 of 2024, w.e.f. 1-4-2025". So the whole public-company / National Housing Bank limb of s.43D is out of the Act from assessment year 2025-26, and Rule 6EB, which by its own heading operates "under clause (b) of section 43D", now attaches to a clause that no longer exists. Second, the words "such class of non-banking financial companies as may be notified by the Central Government in the Official Gazette in this behalf" were substituted for "a deposit taking non-banking financial company or a systemically important non-deposit taking non-banking financial company" by Act No. 8 of 2023 — the Finance Act, 2023 — with effect from 1 April 2024 (footnotes 24 and 27 on the Year 2025 page; footnotes 35, 37 and 40 on the Year 2024 (No. 2) page). Those earlier NBFC words had themselves been inserted by Act No. 23 of 2019 — the Finance (No. 2) Act, 2019 — with effect from 1 April 2020 (footnotes 51 and 52 on the Year 2019 (No. 2) edition, /w/section-43d-28). The practical consequence is unchanged and is the most important thing in this entry: from AY 2024-25 an NBFC is inside s.43D only if it falls within a class the Central Government has notified, and no such notification was located on this pass; a reader should not assume one exists, and should check the Gazette before advising an NBFC that s.43D is available to it. Rule 6EA as printed on the departmental page is drafted around the older sticky-advance vocabulary rather than around the RBI's later asset-classification norms; that is what the page prints and I have not attempted to reconcile it. Departmental RULE pages carry no "Year:" stamp, so neither Rule 6EA nor Rule 6EB can be dated the way a section can, and I have not dated them. `decided_on` is null rather than a commencement date because this entry states a section whose limbs commenced on several different dates (1 April 2018, 1 April 2020, 1 April 2024 and 1 April 2025), all of which are given above. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
Not applicable — this entry states statutory text, not a holding.
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