Why Stock Take under Income Tax and GST? Part 1 of 2 

01eKTP 58

Conduct stock take for Tax Saving and meetregulation requirements.

02What is stock take?

• To count and check the goods on hand in a shop or business
• To reassess one's current situation, progress, prospects, etc
• A count and check of goods on hand in a shop or business
• A reassessment of one's current situation, progress, prospects, etc

Reference: Collins English Dictionary. Copyright © HarperCollins Publishers

03Why stock take is important under Income Tax?

2.1 Inventory written off or lost

• Stock lost and stock obsolescence have to immediately identified and written off in order to claim tax deduction.
• In respect of undisposed long period stock. It is better to written down the stock to net realisable value.
• To claim above tax deduction, the Company need to have documentary evidence.

2.2 Stock in trade withdrawn for own use

• If there is any stock trade withdrawn for own use shall recognised as sales at market value.

Reference: Public Ruling No. 4/2006 Valuation of stock in trade and work in progress.

04Why stock take is important under GST?

3.1 Stock written off

• Input tax credit is allowable for expired or damaged and subsequently written-off and destroyed goods.
• If the written-off goods are sold as scrap, it is subject to GST 6% and the company has to issue a tax invoice.
• For written-off goods which are disposed off other than by sale, GST registered person is required to keep the related documents as proof that the goods have been written-off and disposed.

Reference: General_Guide_24082017

3.2 Unexplained stock quantity loss

• According to Section 43(5)(d) of the GST Act 2014, DG may access the amount of tax that would have been chargeable for unexplained stock quantity loss.
• If no voluntary adjustment made (voluntary account for the output tax) and Custom found out, custom may value the stock at open market value. Fine and penalty may also apply.