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CMA Final · Direct Tax Laws and International Taxation · Income Computation and Disclosure Standards (ICDS)

Under the Income-tax Act, 2025, for computing business income, how is the inventory of a trader in goods to be valued as per the provisions linked to the ICDS?

Inventory is valued at the lower of actual cost or net realisable value, computed as per the notified income computation and disclosure standards. Both measures are compared and the lower one is taken, so neither cost alone nor net realisable value alone is the rule.

  1. AAt the higher of actual cost or net realisable value
  2. BAt the lower of actual cost or net realisable valueCorrect
  3. CAt actual cost only, ignoring net realisable value
  4. DAt net realisable value only, ignoring cost

Explanation

Section 277(1)(i) requires inventory valuation at the lower of actual cost or net realisable value, computed as per the notified ICDS. The higher-of option reverses the rule, and the other options ignore one of the two measures.

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