Tally

Recording a bad debt correctly in Tally (so your auditor and the tax office agree)

A bad debt write-off is one journal entry, but a surprising number of businesses get the ledger structure wrong in a way that makes the GST portion invisible later — exactly when you need to show it clearly.

General guidance, not tax advice — confirm your specific entries with your CA, particularly around GST treatment.

Before you touch Tally: confirm collection is genuinely exhausted

Per the actual tax rule (covered in full in the law and tax treatment guide), you don't legally need to prove the debt is unrecoverable before writing it off — the write-off itself is the qualifying act. But that's a legal minimum, not good practice. Make sure this isn't actually a disputed invoice (see spotting a disputed invoice) before you close the door on collecting it — a write-off is easy to record and inconvenient to reverse.

The ledger setup

1. Create a "Bad Debts Written Off" ledger under Indirect Expenses if you don't already have one (Accounts Info → Ledgers → Create).
2. If you want to track GST separately on written-off amounts (recommended — see below), create a sub-ledger or use a cost centre to tag entries, so the GST portion doesn't get buried in the total.

The journal entry

Go to Accounting Vouchers → F7 (Journal):

Critically: select the specific bill reference when passing this entry, not just the party account. If bill-wise details are on for that ledger (they should be — see reading Bills Receivable if you're not sure), Tally will prompt you to allocate the entry against the specific open bill. This closes that bill out of your ageing report correctly, rather than leaving it sitting as an unreconciled open item that keeps showing up in every outstanding report you run afterward.

Keep the GST portion visible, even though you usually can't reclaim it

As covered in the tax treatment guide, GST already charged and paid on this invoice generally can't be reclaimed just because the debt went bad. But you still want the GST component of the written-off amount clearly identifiable in your books — for two reasons: it's information your CA needs at year-end to confirm nothing's being double-counted, and if the specific transaction ever qualifies for a Section 34 credit note (genuine goods return or supply deficiency, within the filing deadline), you need to know exactly how much GST was involved. A narration on the journal entry noting the taxable value and GST amount separately — even though it's one combined Dr/Cr — makes this retrievable later without redoing the math.

What to file alongside the entry

• The original invoice
• A record of collection attempts — call notes, reminder messages sent, any written correspondence
• The date and amount included in taxable income for the relevant year (for Section 36(2) compliance)
• Any dispute the customer raised and how it was resolved or left unresolved, if relevant

None of this needs to be elaborate — a folder with the invoice, a printout of your reminder history, and a one-line note on why collection was abandoned is usually enough to support the entry if it's ever questioned.

Next: Bad debts: law and tax treatment · Reading Bills Receivable in Tally · Legal options against a defaulter