compare tax evasion tax avoidance tax planning

Hello There is nothing which hurts more than payment of taxes. One question that goes through every tax payer’s mind is “how can I reduce my tax liability?” Reducing tax liability is not always a bad or illegal exercise. There are legitimate ways to reduce taxes through proper tax planning and such methods are always encouraged. But unfortunately, there is also a tendency to reduce tax through illegal methods. They are not accepted practice and can invite problems. There are three methods which are commonly used by the taxpayers to reduce their tax liabilities Tax Evasion, Tax Avoidance and Tax Planning Tax Evasion Dishonest taxpayers try to reduce their taxes by concealing income, inflation of expenses, falsification of accounts and willful violation of the provisions of the Income-tax Act. Such unethical practices often create problems for the tax evaders. Tax department not only imposes huge penalties but also initiate prosecution in such cases. Tax Avoidance Tax avoidance is minimizing the incidence of tax by adjusting the affairs in such a manner that although it is within the four corners of the laws, it is done with a purpose to defraud the revenue. It is the act of dodging without directly breaking the law. For example if A gives gift to his wife, the income from the asset gifted will be clubbed in the hand of A. But to avoid this clubbing provision “A” decides to give gift to B’s wife and B reciprocates it by giving gift to A’s wife. This is not tax planning but tax avoidance. Such practices are not acceptable. In the words of Justice Rangnath Misra of Supreme Court in the case of McDowell & Co Limited v CTO [1985] 154 TR 148, “tax planning may be legitimate provided it is within the framework of law. Colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honorable to avoid payment of tax by resorting to dubious methods.” Tax Planning Tax planning is arrangement of financial activities in such a way that maximum tax benefits, as provided in the income-tax act are availed of. It envisages use of certain exemption

Defined as an arrangement of one’s financial and economic affairs by taking complete legitimate benefit of all deductions, exemptions, allowances and rebates so that tax liability reduces to minimum Features:  Comprises arrangements by which tax laws are fully complied  No intention to deceit the legal spirit behind the tax law  All legal obligations and transactions are met

TAX EVASION TAX AVOIDANCE AND TAX PLANNING TAX evasion--- Method of tax evading or reducing tax liability by dishonest means Methods of tax evasion include Concealing of income Overstating expenses Manipulating accounts Violating rules Tax avoidance-- Method to reduce or minimize tax liability by exploiting or taking advantages of a loopholes in the law. It does not give rise to any critical offence. Tax planning-- It is the arrangement of financial activities to minimize the tax incidence by making use of all beneficial provisions of the Income tax law. TAX evasion-- This is Result of illegality suppression misrepresentation and fraud TAX avoidance---This is result of actions none of which is illegal or forbidden. Tax planning-- this is result of availing the benefits under various beneficial provisions of law. Tax evasion--- is illegal Tax avoidance-- is technically legal tax planning-- is legal. Thanks

Dear Uma > Compare Tax Evasion, Tax Avoidance and Tax Planning Tax Planning Defined as an arrangement of one’s financial and economic affairs by taking complete legitimate benefit of all deductions, exemptions, allowances and rebates so that tax liability reduces to minimum Features:  Comprises arrangements by which tax laws are fully complied  No intention to deceit the legal spirit behind the tax law  All legal obligations and transactions are met Tax Avoidance Is reducing tax liability in legally permissible ways and has legal sanction. This is generally accomplished by claiming the permissible deductions Features:  Legitimate arrangement of affairs in such a way so as to minimize tax liability  Avoidance of tax is not tax evasion  There is no element of mala fide motive in tax avoidance • A company in Madhya Pradesh wants to start a new unit in the existing premises. But if it does so than it is not eligible for deduction u/s 80IB. So it decides to start the unit in Arunachal Pradesh. Now the company gets the benefit of deduction u/s 80IB Tax Evasion All methods by which tax liability is illegally avoided is tax evasion Involves:  Stating an untrue statement knowingly  Submitting misleading documents  Suppression of facts  Not maintaining proper accounts of income earned  Omission of material facts • An assessee guilty of tax evasion may be punished

There is nothing which hurts more than payment of taxes. One question that goes through every tax payer’s mind is “how can I reduce my tax liability?” Reducing tax liability is not always a bad or illegal exercise. There are legitimate ways to reduce taxes through proper tax planning and such methods are always encouraged. But unfortunately, there is also a tendency to reduce tax through illegal methods. They are not accepted practice and can invite problems. There are three methods which are commonly used by the taxpayers to reduce their tax liabilities Tax Evasion, Tax Avoidance and Tax Planning Tax Evasion Dishonest taxpayers try to reduce their taxes by concealing income, inflation of expenses, falsification of accounts and willful violation of the provisions of the Income-tax Act. Such unethical practices often create problems for the tax evaders. Tax department not only imposes huge penalties but also initiate prosecution in such cases. Tax Avoidance Tax avoidance is minimizing the incidence of tax by adjusting the affairs in such a manner that although it is within the four corners of the laws, it is done with a purpose to defraud the revenue. It is the act of dodging without directly breaking the law. For example if A gives gift to his wife, the income from the asset gifted will be clubbed in the hand of A. But to avoid this clubbing provision “A” decides to give gift to B’s wife and B reciprocates it by giving gift to A’s wife. This is not tax planning but tax avoidance. Such practices are not acceptable. In the words of Justice Rangnath Misra of Supreme Court in the case of McDowell & Co Limited v CTO [1985] 154 TR 148, “tax planning may be legitimate provided it is within the framework of law. Colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that it is honorable to avoid payment of tax by resorting to dubious methods.” Tax Planning Tax planning is arrangement of financial activities in such a way that maximum tax benefits, as provided in the income-tax act are availed of. It envisages use of certain exemption, deductions, rebates and reliefs provided in the act.

Hiiii friend..... Diff B/w Tax Evasion and Tax Avoidance are as Follows: These are some of the key points of difference. Thanks & Regards,

> `TAX EVASION, TAX AVOIDANCE & TAX PLANNING - THE DIFFERENCE` Tax evasion happens when one intentionally under-declares income earned and/or claims excessive deductions. Tax evasion is easily differentiated from tax avoidance by equating of the former to breaking the rules and the latter to one bending the rules. Tax avoidance, on the other hand, is the legal utilisation of the tax regime to one’s own advantage, to reduce the amount of tax that is payable by means that are within the law (ie taking advantage of the loopholes to minimise tax liability). Tax planning is the art of arranging one’s financial affairs or transactions to minimise tax liability using available means provided by the law. However, the problem arises when one tries to distinguish between tax planning and tax avoidance. Theoretically, it can be told apart by saying that tax planning is concerned with complying with the letter and spirit of the law whereas tax avoidance is only concerned with complying with the letter of the law. However, some would argue that tax avoidance is simply ‘successful tax planning’.

**Tax evasion** Tax evasion is the method or means by which the tax is illegally avoided through unacceptable means. It refers to a situation where a person tries to reduce his tax liability by deliberately suppressing the income or by inflating the expenditure, recording fictitious transactions, etc. **Tax avoidance** Tax avoidance is reducing or negating tax liability in legally permissible ways by structuring one's affairs. Any such transaction would be valid only if it has commercial substance and is not a colourable device. The Supreme Court, in M/s McDowell and Co Ltd Vs Commercial Tax officer, 1985, (154 ITR 148(SC), held that for tax planning to be legitimate it must be within the legal framework and colourable devices cannot be part of tax planning. In deciding whether a transaction is a genuine or colourable device, it is open for the tax authorities to go behind the transaction and examine the "substance" and not merely the "form". **Tax planning** Tax planning may be defined as an arrangement of one's financial affairs to take full advantage of all eligible tax exemptions, deductions, concessions, rebates, allowances permitted under the Income-Tax Act ,1961, so that the tax burden is minimised in the hands of the taxpayer without violating the legal provisions.