• Shubham Mishra

Rule 6EA and 6EB of Income Tax Rules, 1962

Updated: Oct 4

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6EA. Special provision regarding interest on bad and doubtful debts of financial institutions, banks, etc.


Every public financial institution, scheduled bank, state financial corporation, and state industrial investment corporation that receives interest income from the following categories of bad and doubtful debts must comply with the provisions of section 43D.


(a) (i) Non-viable or sticky advances, which occur when irregularities of the kind described in sub-clause

(ii) are noticed in the borrowers' accounts for a period of six months or longer and there are no reasonable prospects for account regularization, or when the accounts or information pertaining to such accounts reflect common symptoms of illness, such as:

1) A slow or negligible turnover that gives the business the appearance of being stagnant;

2) repeated requests for overdrafts or the issuance of checks without verifying the availability of funds in the account;

3) Bills that were bought or discounted that are past due for three months or longer or for which it is difficult to collect payment from the borrower;

4) Instalments that are past due for six months or longer in the case of term loans; and

5) The borrower's unexplained delays in submission

6) Very little or no activity seen during inspections, business suspensions, or closures;

7) A pattern of non-compliance with important requirements, such as the execution of documents or the provision of additional security when necessary;

8) The intentional misallocation of funds to sister units or the purchase of capital assets unrelated to the business or large personal withdrawals by the borrowers;

9) Willful disregard for project schedules resulting in significant cost increases and the need for additional term financing;

10) The strain on cash flow that prevents the payment of wages to employees, statutory fees, or rent for office and factory space;

11) A deficit between current liabilities and current assets;

12) Any significant irregularities discovered by the borrowers' auditors that have not yet been corrected;

13) A fundamental weakness in the unit's financial statements, such as an ongoing cash loss that exceeds one.


(ii) The irregularities in the borrower accounts mentioned in sub-clause (i) include:

· where the accounts are temporarily overdrawn beyond their sanctioned limit or drawing power;

· Term loan installments that are less than six months past due, import bills covered by letters of credit, or installments under carried deferred payments that are less than three months past due;

· Bills that make up no more than 10% to 15% of the total balance in the borrower's account for bills purchased or discounted are past due for payment for less than three months, and a refund for unpaid bills is not forthcoming right away.


(b) Advances recalled, or when it has been decided to do so because it is highly unlikely that they will be repaid and because revitalizing the unit is not thought to be worthwhile.


(c) Accounts with pending lawsuits for the recovery of advances, i.e., accounts with lawsuits filed against them.


(d) Decreed debts, in which case a lawsuit has been filed, a decree has been obtained, and the decree is currently awaiting execution.


(e) Debts whose recoverability has become questionable due to shortfalls in security value, difficulties enforcing and realizing the securities, or the borrower's inability or unwillingness to repay the bank's dues, in whole or in part, and which have not been included in the preceding clauses (a) to (d).


6EB: Categories of bad or doubtful debts in the case of a public company under clause (b) of section 43D.

Every public company whose interest income relates to any of the following categories of bad or doubtful debts must comply with the provisions of clause (b) of section 43D.

(a)(i) Doubtful asset, which is a debt that has been a non-performing asset of the kind described in clause (ii) for a longer period of time;

(ii) The non-performing asset mentioned in clause I shall be one or more of the following:

1. If the interest amount is "past due" for six months or if an installment is past due for more than six months, a term loan beyond one year;

2. A lease payment that has been "past due" for six months, such as a rental or a hire purchase installment;

3. If a bill was bought or discounted,

4. Any other short-term loan or advance credit facility [other than those mentioned in (1), (2), and (3) above], if any amount due to be received in connection with such a facility is "past due" for a period of six months;


(b) loss asset, which is a debt that has been designated as a loss and is thought to be uncollectible but has not yet been written off in the assessee's accounts.

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