Valuation principles

Valuation principles are rules and methods prescribed under tax law to determine the monetary value of assets, liabilities, or inventory for taxation purposes. These principles ensure consistency, fairness, and accuracy in assessing taxable amounts, whether for business or personal assets. Valuation can impact income tax, wealth tax, capital gains tax, and property tax.

Example: A company owns machinery purchased for ₹10 lakh, now aged 5 years. For tax purposes, the valuation principle may require depreciation adjustments to determine its current taxable value. Similarly, closing inventory might be valued at cost or market price, whichever is lower, to calculate taxable profit accurately.