What Is a Write-Off?
Every set of books carries a few amounts the owner has quietly stopped believing in.
A write-off removes one of those amounts from your books once you accept it will never turn into cash: an invoice the customer will not pay, stock nobody will buy, or an asset with nothing left to give. The value leaves the balance sheet and shows up in your profit and loss report as an expense that year.
A write-off tidies your records. It does not bring the money back, and in India it can cost you tax rather than save it.
What Indian Businesses Actually Write Off
Three things account for almost every write-off a small business makes.
| Type | What triggers it | Where it lands |
|---|---|---|
| Bad debt | A customer who has stopped paying | Expense, deductible if conditions are met |
| Stock | Expired, damaged or unsellable goods | Expense, and the credit claimed goes back |
| Asset | Machinery scrapped or of no further use | Expense, and credit on it must be reversed |
Bad debts are the ones people rush. Section 36 of the Income Tax Act still asks two things:
- It must be written off as irrecoverable in the accounts, not parked as a provision (section 36(1)(vii)).
- Under section 36(2) it must already have been counted as income, unless it is money lent in the ordinary course of banking or money-lending. An ordinary advance you paid out does not qualify.
Stock is where the money leaks, because writing it off costs you the input tax credit you already claimed. Our ITC calculator sizes the credit a purchase carries, which is what a write-off puts at risk.
Write-Off vs Write-Down
These two get used as though they mean the same thing. The difference decides whether the item stays on your books.
| Aspect | Write-off | Write-down |
|---|---|---|
| Amount | The whole value goes | Only part of the value goes |
| Item | Leaves the books entirely | Stays, at a lower value |
| Used for | A debt or goods with nothing left | Goods now worth less than they cost |
| Later | Recovery is taxed as income | Reversed if the value recovers |
A saree lot marked down to clear at half price is a write-down. The same lot after two monsoons in a damp godown is a write-off.
Write-Off Example
Take a hosiery wholesaler in Bhiwandi closing its books in April, with one unpaid invoice and one lot nobody wants.
| Item | Amount | Tax effect |
|---|---|---|
| Invoice | Rs 1,32,400, unpaid since March | Deductible once both conditions above are met, but the GST already paid stays paid |
| Stock | Rs 84,600 of unsold winter hosiery | The credit claimed at purchase must go back |
Note: this is an invented example for illustration only. Treatment depends on your own books, so have your CA confirm the entries.
Why a Write-Off Can Cost You Tax
On income tax the write-off itself is easy. In TRF Ltd v CIT (2010) the Supreme Court held that a business no longer has to prove a debt went bad. Writing it off as irrecoverable in the accounts is enough.
GST runs the other way. Non-payment is not a ground for a credit note. Section 34 allows one where the value or tax charged was too high, where goods come back, or where they are found deficient.
A customer who never pays is on none of those grounds, so the tax you remitted stays remitted. A credit note you do issue must be declared by 30 November following the financial year of the supply, or when you file the annual return, whichever is earlier.
Stock is worse. Section 17(5)(h) blocks credit on goods lost, stolen, destroyed, written off or given away, so what you claimed at purchase goes back.
See Dead Stock Before You Write It Off
The write-offs we come across are rarely a surprise. The stock has usually been sitting still for months before anyone calls it dead.
For retail businesses, Petpooja Invoice carries batch and expiry tracking and identifies underperforming items before they turn into dead weight. GST liability and input tax credit sit on the same screen.
For restaurants, Petpooja POSS deducts inventory item-wise as bills go out and flags low stock on the way. This guide to restaurant accounting covers where write-offs sit at month end.
Open your stock report before the quarter closes, not after.
Frequently Asked Questions
No. A write-down cuts an item’s value but keeps it on the books, while a write-off removes it altogether. Stock discounted to clear is written down, but stock nobody will buy is written off.
No. Section 34 permits a credit note only where the value or tax charged was excessive, where goods come back, or where they are found deficient. Non-payment fits none, so the output tax stays paid.
Then it comes back as income in the year you receive it, because you already took the deduction. Reverse the write-off rather than treating the receipt as a fresh sale.
Yes. Section 17(5)(h) of the CGST Act blocks credit on goods lost, stolen, destroyed, written off or disposed of as gifts or free samples, so what you claimed at purchase goes back.
No fixed number of days sits in the law. Most businesses do it at year end, once collection has run its course. The honest test is whether you would still chase the amount.
