Rule 6EB — the law in short
What the courts have decided on section Rule 6EB, in one screen. Read this first; open an entry when you need the facts, the reasoning and the source.
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Statutory position — s.43D: interest on a bad or doubtful debt of a bank, financial institution or NBFC is taxed on credit or receipt, not on accrual, and what Rules 6EA and 6EB prescribe
CBDT Circulars & InstructionsCuts both ways
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.
Listed strongest first: Supreme Court, then High Court, then Tribunal, then CBDT. Nothing here has yet been read in full by a chartered accountant — open an entry to see where it came from.