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

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

eKTP 58

Conduct stock take for Tax Saving and meetregulation requirements.

What 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

Why 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2.2 Stock in trade withdrawn for own use

If there is any stock trade withdrawn for own use shall recognised as sales at market value.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

Why 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.