Apply the earlier event to eligible interest
For FY 2025–26 and AY 2026–27, section 43D of the Income-tax Act, 1961 taxes a scheduled bank's interest on prescribed categories of bad or doubtful debts in the previous year of profit-and-loss credit or actual receipt, whichever is earlier. Verify that the taxpayer and debt fall within the provision. A loan classified as non-performing in the bank's system does not by itself prove the tax test; ordinary trading companies cannot use this article to defer interest on overdue customer balances.
Read the applicable text: Income-tax Act, 1961, section 43D Income-tax Rules, 1962, Rule 6EA Notified ITR-6 for AY 2026–27 ITR-6 corrigendum CBDT Circular 7/2026 Official return utilities, schema and validation rules.
Document the prescribed category independently
Rule 6EA includes, on its terms, non-viable or sticky advances, recalled advances, suit-filed accounts, decreed debts and other debts of doubtful recoverability within the rule. A recall requires highly doubtful repayment, a decision that revival is not worthwhile, and a decision to recall the advance. The suit-filed limb requires a pending recovery suit; the decreed-debt limb requires a decree pending execution. The residual limb covers debts outside the first four categories only where recoverability is doubtful for a reason specified in the rule, such as a security shortfall or the borrower’s inability or unwillingness to repay. Reconcile the tax tag to the regulatory classification but preserve the separate legal analysis. This workflow is for a scheduled bank filing ITR-6; do not extend it to every NBFC or housing finance lender without checking the statute, applicable notification and rule.
Track each amount and both trigger dates
Use unique loan and interest identifiers. Identify what was credited to profit and loss, when cash was received, and how a combined recovery was allocated between principal, interest and other charges. For a receipt or settlement, verify the actual allocation and what constitutes receipt on the facts; a suspense entry or journal narration does not by itself establish actual receipt. Distinguish unrecognised interest that was actually received from an amount already included in prior-year tax. If cash is received in tranches, test the corresponding amounts separately.
Carry only the necessary adjustment into ITR-6
Start from the notified Schedule BP profit computation. If current section 43D interest is already in the starting profit, retain it once. For a statutory addition under section 43D omitted from book profit, reconcile it to the specific residual category for additions under sections 28 to 44DB in Schedule BP A item 23, where applicable; do not also place the same amount in residual item 24. If book profit includes interest already taxed on earlier receipt, reconcile the evidence and supported exclusion separately. Do not force an interest-timing adjustment into the bad-debt recovery route under section 41(4) or into an ICDS field merely because book and tax differ.
Close the register before filing
For each opening deferred amount, show amounts triggered by receipt or credit, previously taxed amounts, unresolved allocations and closing deferrals. Retain tax computations and orders for historical amounts. Use the notified AY form and corrigendum with the current official utility and validations. Where applicable, document the company filing class: Circular 7/2026 moved the covered serial-number 2 return deadline from 31 October to 21 November 2026 and its specified audit-report deadline from 30 September to 21 October 2026; the separate section 92E class has a statutory 30 November return deadline.
Six worked illustrations
All facts and amounts are fictional. Calculations illustrate the stated assumptions, not a predetermined legal outcome.
Illustrative example 1: Suspense with no receipt
A qualifying loan has ₹7 lakh tracked outside profit and loss and no actual interest receipt. For that amount the two section 43D triggers produce ₹0 for the year on the assumed facts.
Illustrative example 2: Credit before collection
₹9 lakh eligible interest is credited to profit and loss in FY 2025–26; ₹2 lakh of that amount is collected in FY 2026–27. Include ₹9 lakh for AY 2026–27; the first subsequent ₹2 lakh of that same amount does not create another inclusion, leaving ₹7 lakh of the taxed pool uncollected.
Illustrative example 3: Receipt before book credit
A settlement includes ₹4 lakh principal and ₹1.8 lakh eligible untaxed interest. The ₹5.8 lakh cash receipt includes ₹1.8 lakh to recognise under section 43D; reconcile any amount absent from the starting book profit.
Illustrative example 4: Different tranches of the same loan
Of ₹10 lakh eligible interest, ₹3 lakh is actually received and not credited to profit and loss, ₹2 lakh of a distinct tranche is credited and unpaid, and ₹5 lakh has neither trigger. Include ₹5 lakh this year, of which ₹3 lakh requires a bridge if absent from starting profit.
Illustrative example 5: Prevent repeat taxation
A current ₹6 lakh book credit comprises ₹2.5 lakh already taxed on a verified prior-year receipt and ₹3.5 lakh first triggered now. The current tax income for this pool is ₹3.5 lakh and the adjustment against the ₹6 lakh book figure is a reduction of ₹2.5 lakh on these facts.
Illustrative example 6: Closing deferred roll-forward
Opening eligible untaxed interest of ₹12 lakh plus ₹8 lakh newly tracked, less ₹6 lakh first triggered by receipts and ₹3 lakh by distinct profit-and-loss credits, leaves ₹11 lakh deferred. The current trigger population is ₹9 lakh.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Confirm the scheduled-bank status | Entity and filing classification |
| 2 | Identify the loan and interest amount | Loan system and interest history |
| 3 | Apply the Rule 6EA limb | Facts and category approval |
| 4 | Date the profit-and-loss credit | General ledger and voucher |
| 5 | Date actual receipt | Bank receipt and settlement evidence |
| 6 | Split principal and interest | Allocation schedule and contract |
| 7 | Check earlier inclusion | Filed computation and orders |
| 8 | Calculate the first-triggered amounts | Loan-wise timing register |
| 9 | Reconcile ITR-6 and book profit | Schedule BP working and utility output |
| 10 | Approve outstanding deferrals | Closing ledger and exception review |
Sixteen practitioner FAQs
1. Does section 43D apply to all overdue trade interest?
No. It requires the applicable institution and prescribed debt category.
2. Does an NPA label prove Rule 6EA applies?
Document the applicable prescribed category and its evidence.
3. Can credit trigger tax without cash?
Yes, where eligible interest is credited to profit and loss first.
4. Can a receipt trigger tax before book credit?
Yes, actual receipt can be the earlier event.
5. Does a suspense account always defer tax?
No. Check actual receipt and the substance of the accounting.
6. Are principal recoveries section 43D interest?
No. Allocate the settlement to the underlying components.
7. How should unallocated cash be handled?
Investigate the actual settlement and preserve a defensible allocation.
8. What if the bank collects only part of the interest?
Test that part and remaining tranches separately.
9. What if the same interest is credited after earlier receipt?
Trace the earlier inclusion and avoid taxing the same amount twice.
10. Is an allowance for expected loss the same question?
No. This article addresses interest timing, not the deduction for bad debts or provisions.
11. Can a separate non-scheduled lender use this rule?
Establish that taxpayer's own statutory entitlement rather than copying a scheduled-bank position.
12. Which ITR-6 item can cover a section 43D addition?
For the stated AY, Schedule BP A item 23 is the residual addition under sections 28 to 44DB, where applicable.
13. Should item 24 repeat the same interest?
No. Reconcile one route from the starting profit.
14. Does a write-off decide whether interest was received?
No. Trace the actual receipt and income credit evidence.
15. What supports a recalled advance tag?
Evidence of highly doubtful repayment, why revival is not worthwhile and the decision to recall the advance.
16. How can a reviewer test the closing deferral?
Match it to the opening pool, new interest, each first trigger and prior-year tax evidence.
Official sources
Income-tax Act, 1961, section 43D Income-tax Rules, 1962, Rule 6EA Notified ITR-6 for AY 2026–27 ITR-6 corrigendum CBDT Circular 7/2026 Official return utilities, schema and validation rules