Year-end review for manufacturing companies: stock, related parties, GST, TDS, MSME dues and provisions

This checklist is written for the owners, finance heads and accountants of manufacturing companies. It covers the year ending 31 March 2027, which is the first year-end under the Income-tax Act 2025. The task is a set of reconciliations (stock, related parties, GST returns, TDS, dues to micro and small suppliers, fixed assets and provisions), each drawn from the books, the GST portal and the tax statements, and collected into one set of schedules for the statutory auditor.

Timing decides the cost. A review held in October leaves time before March in which most errors can still be corrected. Found in May, the same errors are largely settled: a disallowed MSME payment or TDS default raises the tax for the year, and GST credit that was claimed wrongly must be reversed. Where the schedules are maintained during the year, the close takes days; otherwise it can take months. The sections below follow the order in which the work is usually done, and a worked example from Sinnar shows the amounts involved.

1. Stock: count it, value it, explain it

Inventory is usually the largest current asset in a factory. It also involves more judgement than any other figure in the accounts.

Count. Plan a physical count at or near 31 March, covering raw material, bought-out components, work-in-progress, finished goods, stores and spares, and goods lying with job workers (confirm them in writing, against your Form ITC-04 records). Count tags, cut-off of the last goods received and dispatched, and a record of who counted what.

Investigate differences. Where CARO 2020 applies, the auditor must report whether discrepancies of 10% or more in aggregate for each class of inventory were noticed and dealt with. Smaller differences still need explaining and, where written off, reversal of the input tax credit on them.

Value. Under AS 2 or Ind AS 2, inventory is carried at the lower of cost and net realisable value. Check three things:

• fixed overheads in stock are absorbed at normal capacity, not inflated by a slow year (see product cost sheets);
• slow-moving and obsolete items (old models, customer-specific parts for a discontinued vehicle, expired pharma batches) are written down to what they will actually fetch;
• scrap in the yard is recorded and valued.

Bank statements. Where sanctioned working capital limits from banks or financial institutions exceed ₹5 crore on the security of current assets, CARO requires the auditor to report whether the quarterly stock and debtor statements filed with the bank agree with the books. Reconcile the March statement before you file it.

2. Related parties

Companies in a family-owned manufacturing group often trade with each other, and loans between them are common. Each such transaction should be checked as follows.

• A complete list. Update the related-party list for directors, relatives, group companies and entities where directors are interested. The disclosure in the financial statements follows AS 18 or Ind AS 24.
• Approvals. Section 188 of the Companies Act requires board approval for specified transactions, and shareholders' approval above set limits, unless the transaction is in the ordinary course of business and at arm's length. Where there is an audit committee, section 177 requires its approval too. The board's report discloses contracts in Form AOC-2 where required.
• Tax. Section 36(2) of the 2025 Act (section 40A(2) of the 1961 Act) lets the officer disallow payments to related persons that are excessive. Transfer pricing can also apply: always to international transactions with associated enterprises, and to specified domestic transactions in limited cases. See transfer pricing for Indian group companies.

Loans and guarantees to group companies also need checking against sections 185 and 186 of the Companies Act.

3. GST: four documents that must agree

A GST error found at year-end costs least to correct while the time limits remain open.

Time limits for 2026-27. Credit on 2026-27 invoices must be claimed by 30 November 2027, or by the date you file the 2026-27 annual return, if earlier (section 16(4)). Credit notes for 2026-27 supplies, and corrections to 2026-27 details in GSTR-1, have the same limit (sections 34(2) and 37(3)).

Also at year-end:

• If you make any exempt supplies, compute the annual rule 42 true-up, before the due date of the September 2027 return. See ITC for manufacturers.
• Review the 180-day list of unpaid supplier invoices for credit reversal.
• Reconcile job work challans with ITC-04 and the stock count.
• Work out whether GSTR-9 and GSTR-9C apply for the year on your turnover.

4. TDS

Under the Income-tax Act 2025, tax deduction at source on payments other than salary sits in section 393 (the separate sections of Chapter XVII-B of the 1961 Act, such as sections 194C, 194J and 194Q). For a factory, the usual heads are contract and job work payments, professional and technical fees, rent of land and machinery, commission, and purchase of goods.

At year-end:

• Year-end provisions. Expenses booked by journal on 31 March (audit fees, job charges, commission, professional fees) attract TDS when credited, even without an invoice.
• Disallowance. Section 35(b)(i) of the 2025 Act (section 40(a)(ia) of the 1961 Act) disallows 30% of a payment to a resident where tax was deductible and not deducted, or not paid by the due date of the return. The amount is allowed in the year the tax is paid.
• Purchases of goods. If your turnover in 2025-26 exceeded ₹10 crore, tax at 0.1% is deductible on purchases from each resident seller beyond ₹50 lakh in the year (section 393(1), Table Sl. No. 8(ii); section 194Q of the 1961 Act). Check which suppliers crossed that limit during the year.
• Reconcile TDS deducted, paid and reported in the quarterly statements with the expense ledgers, and the TDS deducted from you by customers with the department's statement of your tax credits.

5. Payments to micro and small suppliers

For manufacturers, this item carries the most direct tax cost at year-end.

The payment rule. Section 15 of the Micro, Small and Medium Enterprises Development Act 2006 requires a buyer to pay a micro or small supplier within the agreed period, which cannot exceed 45 days from acceptance, or within 15 days where nothing is agreed in writing. Late payment carries compound interest with monthly rests at three times the bank rate notified by the Reserve Bank (section 16). That interest is not deductible for income tax (section 23).

The tax rule. Section 37(2)(g) of the Income-tax Act 2025 (section 43B(h) of the 1961 Act) allows a deduction for such amounts only if they are paid within the time allowed under section 15 of the MSMED Act. An amount still unpaid beyond that time is deductible only in the year it is actually paid. Medium enterprises, and traders registered on Udyam, are outside the rule.

The disclosures. The financial statements must disclose amounts due to micro and small enterprises and the interest on them (section 22 of the MSMED Act and Schedule III). Companies with dues to such suppliers outstanding beyond 45 days also file a half-yearly return in MSME Form 1 with the MCA.

At year-end: obtain each supplier's Udyam classification and activity in writing; tag them in the purchase ledger; and run an ageing of every bill against its due date, not against 31 March.

6. Fixed assets

• Capital work-in-progress. Identify assets ready for use before 31 March and capitalise them from that date. CWIP that has been "nearly ready" for two years needs an explanation, and Schedule III requires an ageing.
• Cost. Capitalise net of GST where credit is taken; section 16(3) of the CGST Act denies credit if depreciation is claimed on the tax. Add installation, freight and trial-run costs; borrowing costs only under AS 16 or Ind AS 23.
• Physical verification. Where CARO applies, the auditor reports on whether assets were verified at reasonable intervals and whether title deeds of immovable property are in the company's name.
• Disposals and scrapping. Remove assets sold or scrapped, and account for GST on the sale under section 18(6) where credit was taken.
• Impairment. Consider it where a line is idle or a customer programme has ended.
• Tax depreciation under section 33 of the 2025 Act (section 32 of the 1961 Act) is computed on blocks of assets, separately from book depreciation.

7. Provisions and contingent liabilities

• Gratuity and leave encashment. Obtain actuarial valuations. The four Labour Codes in force from 21 November 2025 widened the definition of wages for many employers. ICAI's guidance is that the resulting increase in liability is recognised as an expense when it arises.
• Bonus. Provide for the statutory bonus. Under section 37 of the 2025 Act (section 43B of the 1961 Act), bonus, leave encashment and employer contributions to staff funds are deductible on payment. A payment made after 31 March but by the due date of the return still counts for the year (section 37(3)); amounts owed to micro and small suppliers get no such grace.
• Warranty. Provide on the basis of past claims and current failure rates, under AS 29 or Ind AS 37.
• Doubtful debts. Review OEM debits, rejected supplies and old dealer balances.
• Notices and disputes. List every GST, income-tax and other notice open at year-end, with the amount and status, and decide which need a provision and which a disclosure. See replying to a GST notice.

8. A worked example: a Sinnar electrical-equipment maker

The figures are illustrative. No real business is described.

A company in Sinnar MIDC makes distribution transformers and control panels. Turnover for 2026-27 is ₹68 crore, and it has sanctioned working capital limits of ₹12 crore. Its October review finds:

Because the review took place in October, each item can be corrected before the year closes. The small suppliers can be paid and the TDS deducted and deposited. The wrong credit can be reversed, and the missing suppliers can be pursued. If the same findings were made in May, most would already be a cost.

9. What the statutory auditor will ask for

Audit requests are broadly similar from one auditor to another. When the documents are ready in advance, the audit is shorter and fewer queries are raised.

• Trial balance, ledgers and the final accounts in the Schedule III format.
• Stock count sheets, the valuation working, NRV and slow-moving analysis, and job worker confirmations.
• Bank, debtor, creditor and loan confirmations, and the bank reconciliations.
• The quarterly stock statements filed with the bank, reconciled with the books.
• The fixed-asset register, CWIP ageing, capitalisation papers and title deeds.
• The related-party list, with approvals and the transactions for the year.
• The MSME supplier list, their classifications and the ageing.
• GST reconciliations, returns and the notice register; TDS returns and reconciliations.
• Actuarial reports and the working for other provisions.
• Board and committee minutes, statutory registers and agreements.
• Confirmation that the accounting software kept an audit trail throughout the year that could not be disabled, as rule 3(1) of the Companies (Accounts) Rules 2014 requires. The auditor reports on this.
• A management representation letter, signed at the end of the audit.

What this means for a manufacturer

• Do a half-year review in October against this list, while problems can still be corrected.
• Collect Udyam classifications from every supplier and run a due-date ageing each month.
• Run the four GST reconciliations monthly; finish 2026-27 corrections well before 30 November 2027.
• Check TDS on year-end provisions before the books close.
• Plan the stock count now, including goods with job workers.
• Update the related-party list and obtain approvals before the year's transactions take place.
• Obtain actuarial valuations early, given the Labour Codes.
• Prepare the auditor's schedules before the audit starts.

This article is general information on the law as at 1 October 2026 and is not advice on any particular case. Section numbers under the Income-tax Act 2025 and its Rules are new; check the current text before acting.