Closing inventory valuation has to be done including GST and taxes!

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Closing inventory valuation has to be done including GST and taxes!

In this article we will discuss about an amendment made by Finance Act 2018 that have retrospective effect from Assessment Year 20 18-19. This point needs to be carefully noted in the current as well as future audit season.

The amendment is made in Section 145A of the Income Tax Act, 1961. This section has been substituted by Finance Act 2018. Clause (ii) of Section 145A reads as under:

145A. For the purpose of determining the income chargeable under the head “Profits and gains of business or profession”,

(ii)  the valuation of purchase and sale of goods or services and of inventory shall be adjusted to include the amount of any tax, duty, cess or fee (by whatever name called) actually paid or incurred by the assessee to bring the goods or services to the place of its location and condition as on the date of valuation;

This clause clearly states, while doing stock valuation of inventory the value shall include the amount of any tax, duty, cess or fees. The amount of taxes on the goods shall be included in cost of the goods.

The taxes that will be included in goods for calculating opening stock for AY 2018-19 will be VAT, Excise Duty etc. While computing the closing stock the taxes to be included will be Goods and Service Tax.

In FY 2016-17 the tax was not added while computing closing stock. For FY 2017-18 it shall be added while computing opening as well as closing stock. The difference in opening stock of FY 2017-18 and Closing stock of FY 2016-17 can be shown as rate difference.

Remember to incorporate the changes CAs.

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