Tax Evasion Tax Avoidance Tax Planning!
Tax Evasion
Tax evasion is an illegal action in which a person or entity deliberately avoids paying a true tax liability. Tax evasion cannot be curtained with the word mistake. An assessee guilty of tax evasion is punishable with penalties and imprisonment.
Tax evasion activities include
- Under reporting the income
- Inflating the expenditure or deduction
Tax evasion also involve submitting misleading documents, suppressing facts, stating untrue statements, etc.
For example : Private company having total income of Rs 7.5 lakhs and director’s wife is having just income of Rs 2 lakhs. Companies are taxable at the rate of 30% but in case of individuals they get slab benefit so company give salary of Rs 3 lakhs to reduce its tax burden by illegal action.
Tax Avoidance
Tax avoidance is taking the advantage of loopholes and ambiguities in tax provisions to attract tax of lower amount.
Every attempt by legal means to prevent or reduce tax liability which would otherwise be incurred, by taking advantage of some provisions or lack of provisions in the statutes of the country is regarded as tax avoidance. The difference between tax planning and tax avoidance is very minimal.
Tax Planning
Tax Planning can be understood as the activity undertaken by the assessee to reduce the tax liability by making optimum use of all permissible allowances, deductions, concessions, exemptions, rebates, exclusions and so forth, available under the law.
Tax Planning can be defined as arrangement of financials in such a way that, without violating any of the legal provisions, full advantage of deduction and exemptions.
Example of Tax Planning
Investments made as specified under section 80C to claim deduction
To know the investments that can be made under section 80C for Tax Planning
Refer article
https://thetaxtalk.com/2018/09/06/investment-to-be-made-to-claim-deduction-under-section-80c/
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