Income Tax Dept Cracks Down on Gold Jewellers Using Illegal Accounting Trick
The Income Tax Department is investigating gold jewellers for using a banned accounting method to hide profits and avoid taxes
The Income Tax Department has started a major investigation into several gold jewellers in India. These jewellers are suspected of using a banned method to calculate their stock value. This method allowed them to show lower profits in their books and pay less tax than they should have. As gold prices in India have skyrocketed in recent years, some jewellers may have tried to...
The Income Tax Department has started a major investigation into several gold jewellers in India. These jewellers are suspected of using a banned method to calculate their stock value. This method allowed them to show lower profits in their books and pay less tax than they should have.
As gold prices in India have skyrocketed in recent years, some jewellers may have tried to take advantage of the situation. According to tax officials, these jewellers changed how they valued their inventory. They started using a method called “Last-In, First-Out,” or LIFO.
Overwhelmed by GST Cases? This digest simplifies it for you - Click here
This method means the most recently purchased gold is counted as being sold first. The older, cheaper gold is left as closing stock which shows a lower value in the company’s records. That leads to lower reported profits and lower taxes.
Using LIFO is not allowed under Indian tax laws. From the year 2016 to 2017, businesses are required to use either the “First-In, First-Out” (FIFO) method or the “weighted average cost” method to value their inventory. FIFO assumes the oldest gold is sold first, which usually results in higher profits when prices are rising. Higher profits mean more taxes. That is why some jewellers may have tried to switch to LIFO to reduce their tax burden.
One jewellery company has already paid close to 100 crore rupees in back taxes after being caught using the wrong method. Tax officials believe that many jewellers may have been doing this for the past five to six years.
Experts say that the way a company values its stock is very important especially when gold prices keep increasing. Since 2019, the price of gold in India has nearly tripled. It was around 31,000 rupees for 10 grams in 2019 and has now gone up to nearly 98,000 rupees.
Tax professionals also say that businesses must follow proper and consistent accounting rules. The tax department has the right to check if the numbers in a company’s account books truly reflect its profits.
The investigation is still going on, and more jewellers could be examined. This move by the tax department sends a clear message that using unfair accounting methods to avoid taxes will not be accepted.
Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates
