At the time of valuation of stock should we include VAT ?
(as we are avaling the credit of vat amount which we had already paid in purchase so how can we add the same) this is said by one of my friend is it true or not. plz reply me on this topic.
Amit,
Under section 145A of the Income Tax Act-
Section 145A
[b]METHOD OF ACCOUNTING IN CERTAIN CASES. [/b]
Notwithstanding anything to the contrary contained in section 145, the valuation of purchase and sale of goods and inventory for the purposes of determining the income chargeable under the head "Profits and gains of business or profession" shall be - (a) In accordance with the method of accounting regularly employed by the assessee; and
(b) Further [b]adjusted to include the amount of any tax, duty, cess or fee [/b][i][/i](by whatever name called) actually paid or incurred by the assessee to bring the goods to the place of its location and condition as on the date of valuation.
Explanation : For the purposes of this section, any tax, duty, cess or fee (by whatever name called) under any law for the time being in force, shall include all such payment notwithstanding any right arising as a consequence to such payment.
Hence, as mentioned in the Act, while calculating the value of closing stock lying at the year end, we should include the VAT amount. Doing this current years profit would increase by VAT amount at the same time next year it would get adjusted as you will take the closing stock value as opening stock in next year. Although you are going to take a credit of VAT in coming month, you are forced to include the same and pay income tax accordingly.
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