Tax Planning Tax Avoidance And Tax Evasion Difference

Tax evasion is most commonly thought of in relation to income taxes but tax evasion can be practiced by businesses on state sales taxes and on employment taxes.

Tax planning tax avoidance and tax evasion difference. 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. One common tax evasion strategy is failing to pay turn over taxes you have collected from others to the proper federal or state agency. Commercial tax officer wherein justice reddy stated much legal sophistry and judicial exposition both in england and india have gone into the. Tax evasion is blatant fraud and is done after the tax liability has arisen.

All the methods are different and interchangeable. Tax avoidance refers to hedging of tax but tax evasion implies the suppression of tax. Iii tax avoidance is done through not malafied intention but complying the provision of law. A planning made to reduce the tax burden without infringement of the legislature is known as tax avoidance.

Tax evasion is an unlawful way of paying tax and defaulter may punished. It is well advised that any taxpayers whether individuals or businesses should be fully aware of the tax practices being used. The distinction between tax planning avoidance and evasion has been a long discussed topic in the field of taxation law and one of the foremost indian case in which the discussion was taken up was in the landmark case of mcdowell co. 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.

It is an exercise by which the assessee legally takes advantage of. 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 planning and tax avoidance are the legal ways to reduce tax liabilities but tax avoidance is not advisable as it manipulates the law for one s own benefit.

Iv tax avoidance looks like a tax planning and is done before the tax liability arises. The dividing line amidst the two concepts is thin and blur. 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. Difference between tax planning tax avoidance tax evasion.

Tax liability of an individual can be reduced through 3 different methods tax planning tax avoidance and tax evasion. It is a way to reduce tax liability by taking full advantages provided by the act through various exemptions deductions rebates and relief. Difference between tax planning tax avoidance and tax evasion.