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Stock Valuation in Income Tax

CA Siddhartha Bhardwaj (Proprietor at Siddhartha Bhardwaj & Associates Chartered Accountants) (33456 Points)

02 January 2011

Hi, I would like to know what are the methods of stock valuation allowed as per the Income Tax Act. Kindly mention the relevant Section/Rule.

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5 Replies

Devendra (Chartered Accountant) (4775 Points)
Replied 02 January 2011

Dear Siddhartha,

Following are the methods of stock valuation:-

1) FIFO (First in First Out)

2) LIFO (Last in First Out)

3) Weighted Average Cost

As per section 145A of Income Tax Act, stock valuation should be inclusive of any tax, duty, cess or fee actually paid by assessee to bring the goods to the place of its location and condition as on date of valuation, even if such tax or duty is includible even if any right arises as a consequence to such payment. Thus, duty paid on inputs will have to be added while valuing stock, even if Cenvat credit availed of such duty paid. In respect of finished stock, excise duty payable should be added to the inventory valuation even if not paid as goods are still lying in the factory. Both opening as well as closing stock should be valued on same basis.

Regards,

Devendra Kulkarni

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varun jain (Employed) (363 Points)
Replied 02 January 2011

U/s 145A of the Income Tax Act the inventory should be valued in accordance with the method regularly employed by the assessee. Further it should be adjusted to include any duty, cess, duty, fee etc. incurred by the assessee to bring the goods to the place of its location and condition as on the date of valuation.