Distinguish Between Tax Planning Tax Avoidance And Tax Evasion

Employment tax evasion criminal investigation ci accessed april 27 2020.

Distinguish between tax planning tax avoidance and tax evasion. Difference between tax planning tax avoidance tax evasion. Iv tax avoidance looks like a tax planning and is done before the tax liability arises. An unlawful act done to avoid tax payment is known as tax evasion. The dividing line amidst the two concepts is thin and blur.

Tax evasion vs tax avoidance as tax avoidance and tax evasion are both methods used by individuals and businesses to minimize or completely avoid the payment of taxes one should be able to recognize the difference between tax evasion and tax avoidance while these concepts may sound similar to one another there are a number of differences between tax evasion and tax avoidance. Criminal offence which involves the reduction of one s tax liability or obtainment of tax credits or refunds through illegal means such as the claim for fictitious or non existent expense or failure to declare taxable income. Tax avoidance refers to hedging of tax but tax evasion implies the suppression of tax. Tax evasion accessed april 27 2020.

A planning made to reduce the tax burden without infringement of the legislature is known as tax avoidance. Tax avoidance can be done by adjusting the accounts in such a manner that there will be no violation of tax rules. The difference between tax planning and tax avoidance is that tax avoidance always increases your tax risk while tax planning either reduces it or does not increase your tax risk. Accessed april 27 2020.

Tax evasion is an unlawful way of paying tax and defaulter may punished. The difference between tax avoidance and tax evasion accessed apr. Iii tax avoidance is done through not malafied intention but complying the provision of law. The difference between tax evasion and tax planning avoidance is relatively clear cut.

The following are the major differences between tax avoidance and tax evasion. It is well advised that any taxpayers whether individuals or businesses should be fully aware of the tax practices being used. Tax planning is an art to reduce your tax outgo by making sure that all the applicable provisions of our income tax act as designed to reduce your tax liability has been availed of. While the nature of tax planning is quite obvious there sometimes seems to be some confusion over the difference between tax evasion and tax avoidance hence making wrongful decisions.

Tax evasion is blatant fraud and is done after the tax liability has arisen. Tax crimes handbook page 2. Cornell legal information institute. Unlike tax avoidance tax planning is the practice of minimising tax liability with no intention of deceit while some practices of tax avoidance have been found to have the intention to deceive.

On the other hand the tax avoidance is a technique of refraining from tax liability through just and fair means but intends to defeat the fundamental motive of the legislature.