Expired Stock Journal Entry: GST & Ind AS 2

What kind of loss is expired stock, exactly?

Before you touch the journal, you need to classify the loss correctly — because the accounting treatment, the GST consequence, and the disclosure requirement all flow from that classification.

Under Ind AS 2 (Inventories), paragraph 16 excludes abnormal amounts of wasted material or spoilage from the cost of inventories, and paragraph 28 says the cost of inventories may not be recoverable when they are damaged or obsolete. Expired stock is both. It is not a cost of production. It goes directly to the profit-and-loss statement in the period it is identified, not into the cost of inventory. That single paragraph is the foundation of everything that follows.

Damaged stock is treated the same way when the damage is abnormal — a flood, a cold-chain failure, a fire. If the damage is normal and expected (a small percentage of breakage in transit, for instance), it gets absorbed into the cost of the surviving stock. Abnormal damage, like expiry, is expensed immediately.

The core journal entry for writing off expired inventory

The entry itself is straightforward. What changes is the account name you use on the debit side — and whether you need a separate GST reversal entry.

Step 1 — Write the stock down to net realisable value (NRV)

If the expired goods have zero NRV (you cannot sell them, donate them for a tax deduction, or recover anything from the supplier), the full carrying cost is written off:

```

Dr Expired / Damaged Stock Loss A/c ₹X

Cr Inventory / Stock A/c ₹X

```

If there is partial recovery — say the supplier will accept a return at a reduced credit, or you can salvage the packaging — write down only to the recoverable amount first, then write off the residual when the recovery is confirmed.

Step 2 — Transfer to P&L

Most Tally setups carry the loss account directly under "Indirect Expenses" or a dedicated "Inventory Write-off" group, so the P&L hit is automatic. If you are using a provision approach (common in larger entities doing quarterly closes), the entry is:

```

Dr Provision for Inventory Losses A/c ₹X

Cr Inventory A/c ₹X

```

And then at year-end, the provision is charged to P&L. Either approach is acceptable under Ind AS 2 as long as the write-down is recognised in the period the condition is identified — paragraph 34 of Ind AS 2 is explicit on this.

GST: the ITC reversal entry you cannot skip

This is where most accountants make the error. When you purchased the stock, you claimed Input Tax Credit (ITC) on the GST paid. Once that stock expires and is destroyed or written off, Section 17(5)(h) of the CGST Act, 2017 kicks in: ITC must be reversed on goods lost, stolen, destroyed, written off, or disposed of by way of gift or free samples.

Expiry qualifies as goods lost or destroyed for this purpose. The reversal entry is:

```

Dr ITC Reversal — Expired Goods (Indirect Expense) A/c ₹Y

Cr Electronic Credit Ledger / ITC Receivable A/c ₹Y

```

In GSTR-3B, this reversal goes into Table 4(B)(2) — "Other reversals" — for the return period in which the goods are destroyed or written off. Do not wait until the annual return. Reversing in the correct month avoids interest under Section 50 of the CGST Act.

For a worked example: suppose you bought goods at ₹1,00,000 + 12% GST (₹12,000 ITC claimed). The goods expire and are destroyed. You reverse ₹12,000 ITC in GSTR-3B and debit ₹12,000 to an ITC Reversal expense account. Your total P&L charge for this batch is ₹1,12,000 — the cost of goods plus the ITC you can no longer keep.

For a deeper walk through the ITC mechanics, see our post on GST input tax credit on expired medicines.

Ind AS 2 write-down: the measurement rule

Ind AS 2, paragraph 9, requires inventory to be measured at the lower of cost and net realisable value. For expired stock, NRV is typically nil or close to nil — no prudent buyer will pay for goods past their expiry date at full price.

The write-down is the difference between the carrying amount (cost) and NRV. If NRV is zero, the write-down equals the full carrying amount. Ind AS 2, paragraph 34, requires the amount of any write-down to be recognised as an expense in the period the write-down occurs. It also requires disclosure of the total amount of inventories carried at NRV when that is material.

One nuance: if you have a confirmed supplier credit note or insurance claim in progress, NRV is not zero — it is the expected recoverable amount. Book the write-down to NRV, not to zero, and reassess each reporting period.

Our CA's guide to inventory valuation and expiry covers the cost-formula and NRV measurement questions in more detail.

Dead stock and the "depreciation rate" question

Searches for "dead stock depreciation rate" usually come from accountants trying to apply a fixed percentage write-down, similar to how fixed assets are depreciated under Schedule II of the Companies Act, 2013. That framing is incorrect for inventory.

Inventory is not depreciated — it is written down to NRV under Ind AS 2. There is no prescribed rate. The write-down is triggered by a condition (expiry, damage, obsolescence), not by the passage of time at a fixed percentage. If a product is six months from expiry and its NRV is still equal to cost, no write-down is required yet. If it expires tomorrow and NRV drops to zero, the full write-down is booked today.

For tax purposes under the Income Tax Act, 1961, the write-off of expired stock is allowable as a business expenditure under Section 37(1), provided you can demonstrate the goods were actually destroyed or rendered unsaleable. A destruction certificate, a witnessed disposal record, or a drug inspector's acknowledgement (for Schedule H or H1 drugs under the Drugs and Cosmetics Act, 1940) serves as supporting evidence.

Documentation the auditor will ask for

The journal entry is only as defensible as the paper behind it. For each write-off, keep:

• A physical count or stock audit record identifying the specific batch, quantity, and expiry date
• A destruction or disposal certificate (for pharmaceuticals, follow CDSCO guidelines on expired drug disposal)
• Supplier correspondence if a credit claim is in progress
• The GSTR-3B return screenshot showing the ITC reversal in the correct period
• Board or management approval if the write-off amount crosses your entity's materiality threshold

Without destruction evidence, the Income Tax department can disallow the expense on assessment. Without the GSTR-3B reversal, a GST audit will raise a demand with interest.

Supplier credit notes: a separate entry

If your supplier takes the expired goods back and issues a credit note under Section 34 of the CGST Act, 2017, the goods were returned, not destroyed — so the Section 17(5)(h) reversal above does not apply to them. The credit note reduces what you owe the supplier and reduces your ITC by the GST shown on it:

```

Dr Creditors / Supplier A/c ₹Z + GST on credit note

Cr Expired Stock Recovery A/c ₹Z (net of GST)

Cr GST Input Tax Credit A/c ₹GST on credit note

```

The recovery goes to "Other Income" or reduces the write-off expense, depending on your accounting policy — be consistent year to year. Report the ITC reduction in GSTR-3B for the month the credit note is issued, and match it against the supplier's credit note in your GSTR-2B so the two sides of the return agree.

For the full process on handling these returns, see our post on writing off versus donating expired inventory and the tax math.

Putting it into Tally

In Tally Prime, the standard path is:

• Create a ledger "Expired Stock Written Off" under Indirect Expenses.
• Create a ledger "ITC Reversal — Expired Goods" under Indirect Expenses.
• Use a Journal voucher (not a stock journal) to credit the stock item at cost and debit both expense ledgers in the correct amounts.
• Attach the destruction certificate as a supporting document in the voucher.
• Reconcile the ITC reversal ledger balance against GSTR-3B Table 4(B)(2) at month-end.

If your system generates a batch-wise expiry report, the write-off process starts there — you need the batch number, quantity, and cost per unit before you can pass the entry. ShelfLifePro's expiry report exports batch-level cost data directly into a Tally-compatible format, so the figures you need for the journal are already calculated. If expired stock accounting is a recurring problem in your business, the 14-day free trial, no credit card required is worth running alongside your next stock audit.