Damaged and obsolete stock: input tax and write-offs

Every business that holds stock eventually faces inventory that cannot be sold — damaged in handling, past its useful life, or simply obsolete. Writing it off is an accounting reality, but it carries a sales tax consequence that is easy to miss: the input tax you already claimed on that stock. And if you sell the stock cheaply instead of writing it off, a different rule applies. This guide covers both.

Write-offs and input tax

When you claimed input tax on stock, it was on the basis that the goods would be used to make taxable supplies. Stock that becomes damaged or obsolete and is written off never reaches a taxable supply — so the input tax attributable to it can fall to be reversed. This mirrors the treatment of goods lost or destroyed: input credit is meant to follow inputs into taxable output, and a write-off breaks that chain. Writing stock off is therefore not automatically neutral for sales tax; the input side may need adjusting. The precise mechanism and any thresholds depend on the current rules and should be confirmed, but the point is to recognise that a write-off has an input-tax dimension rather than assuming it is a purely accounting event.

Selling damaged stock is still a supply

Often the better commercial choice is to sell damaged or obsolete stock at a reduced price rather than write it off — and that changes the analysis entirely. A sale of the stock, however cheap, is still a supply of taxable goods, and sales tax applies on the actual consideration received. Selling at a low price reduces the tax because the taxable value is lower, but it does not remove the supply. This is the opposite of a write-off: here there is a sale, so there is output tax, on whatever you actually get. Confusing the two — treating a cut-price clearance as if it were a tax-free write-off — is a straightforward error that leaves output tax undeclared.

Document the write-off

A write-off must be documented and approved, not simply adjusted into the accounts. That means internal approval of the write-off, records identifying the specific stock and why it is unsaleable, and evidence of its disposal or destruction. An unsupported write-off invites the same suspicion as an undocumented loss: that the stock was in fact sold off the books and the "write-off" is cover for a suppressed sale. Good documentation both supports the input-tax treatment and demonstrates that the stock genuinely left the business without a hidden sale.

Common mistakes

• Treating an inventory write-off as neutral for sales tax and ignoring the input tax previously claimed.
• Selling damaged or obsolete stock cheaply without charging output tax on the consideration received.
• Adjusting a write-off in the books with no approval, disposal evidence or item records.
• Blurring the line between a genuine write-off and stock quietly sold off the books.

Where it fits

Write-offs are the deliberate cousin of accidental losses, both turning on the input-tax principle that credit follows goods into taxable supplies. Where obsolete goods are sold as scrap or waste, that sale has its own treatment, and the whole area rests on getting input and output tax right. Document the write-off, and tax any actual sale on what you receive.

An evidence-led way to apply this guidance

The useful question in Damaged and obsolete stock: input tax and write-offs is not simply whether a rule exists. For Damaged and obsolete stock: input tax and write-offs, the file must prove the facts that make the rule apply. Start the Damaged and obsolete stock: input tax and write-offs working by writing down classification, place of supply, registration status and the exact invoice base. Then tie each Damaged and obsolete stock: input tax and write-offs conclusion to contract, tax invoice, customer location, payment trail and the return working. That article-specific exercise separates a defensible Damaged and obsolete stock: input tax and write-offs position from one built around a label, a memory or a copied rate.

The legal starting point for Damaged and obsolete stock: input tax and write-offs is the Sales Tax Act 1990, its rules and current notifications. The operational check for Damaged and obsolete stock: input tax and write-offs belongs with FBR. Read the instrument, current guidance and actual transaction together for Damaged and obsolete stock: input tax and write-offs: guidance explains administration, but it does not rewrite the law or repair missing evidence.

Rate discipline. The 18% used below is an explicit case assumption for Damaged and obsolete stock: input tax and write-offs, not a substitute for checking the rate that applies to the actual period, supply, entity or election. For Damaged and obsolete stock: input tax and write-offs, replace that assumption with the confirmed current rate before the working is used in a return or invoice.

Two worked case files

Worked example 1 — build the taxable invoice base. For a file concerning Damaged and obsolete stock: input tax and write-offs, assume the records show Rs 600,000 as the gross contract and invoice value, Rs 80,000 as the separately documented out-of-scope component, and Rs 25,000 as the credit note or price adjustment. The taxable value carried to the rate working for Damaged and obsolete stock: input tax and write-offs is therefore Rs 495,000:

WORKING 1 Rs 495,000 x 18% = Rs 89,100; Rs 495,000 + Rs 89,100 = Rs 584,100

The arithmetic is the easy part of Damaged and obsolete stock: input tax and write-offs. The Damaged and obsolete stock: input tax and write-offs judgement sits in classification of the supply, place of supply, tax point and documentary support for each exclusion, including why Rs 80,000 and Rs 25,000 were removed. If any Damaged and obsolete stock: input tax and write-offs answer is weak, keep the amount in the exception list rather than forcing it into a filing, resolution or account.

Worked example 2 — reconcile the return to customer balances. For Damaged and obsolete stock: input tax and write-offs, assume Rs 1,050,000 as the customer-ledger control total, Rs 200,000 as the receipts matched to tax invoices, and Rs 55,000 as the valid credit notes and timing differences. The open amount supported by the return file for Damaged and obsolete stock: input tax and write-offs is Rs 795,000.

WORKING 2 Rs 1,050,000 - Rs 200,000 - Rs 55,000 = Rs 795,000

For Damaged and obsolete stock: input tax and write-offs, place the Rs 1,050,000 customer-ledger control total, the Rs 200,000 support for the receipts matched to tax invoices, and the Rs 55,000 schedule for the valid credit notes and timing differences beside the final Rs 795,000 balance. A Damaged and obsolete stock: input tax and write-offs reviewer should be able to move from source evidence to control total, from control total to decision, and from decision to the submitted figure without a hidden spreadsheet or oral explanation.

The final quality-control questions

• Has the file for Damaged and obsolete stock: input tax and write-offs identified the controlling law and the version effective for the relevant date?
• Are the Damaged and obsolete stock: input tax and write-offs assumptions visibly labelled and separated from enacted rates, thresholds and deadlines?
• Do the Rs 495,000 and Rs 795,000 results reconcile to source evidence and the general ledger?
• Is every Damaged and obsolete stock: input tax and write-offs exception assigned to a person and date rather than buried in a note?
• Has the client or responsible officer approved the Damaged and obsolete stock: input tax and write-offs facts before submission?

This is the standard that makes Damaged and obsolete stock: input tax and write-offs useful in practice: the conclusion is stated, the law is named, the numbers can be recomputed, and the evidence survives after the person who prepared the file has moved on.

Sources

This guide is written against the official and clearly labelled professional references below. Rates, thresholds and portal procedures change between reviews, so open the primary source before relying on a figure.

• Sales Tax Act 1990, amended through 30 June 2026 (FBR)
• Sales Tax Basics (FBR)

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