What is GST treatment of Bad Debts?
Nexa Consultancy | Startup & Finance Glossary
If a business has already paid GST on an invoice but the customer defaults on the payment (bad debt), the GST law does not provide a direct mechanism to claim a refund of the GST paid. However, specific accounting entries and documentation are required to write off the debt correctly.
Startup Example: A service startup pays GST on an invoice of ₹1 Lakh. The client goes bankrupt and doesn't pay. The startup cannot simply reverse the GST paid. It must follow the procedure for writing off bad debts in its books.
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