Tax Evasion v/s Tax Avoidance. Know The Difference.

Date:

DO YOU QUESTION YOURSELF? WHY DO YOU HAVE TO PAY TAX?

Every citizen of India find ways to how they can reduce their tax liabilities.  Any liability, whether personal liability or business liability, is a burden. An individual tries to minimize the liability, and there is nothing wrong with it; neither is it a crime nor offence to the law.

WHY DO WE PAY TAX?

Every individual of India has paid tax through Direct or Indirect sources. The Government collects taxes to develop and enhance the infrastructure, education, pharmaceutical sector of the country.

The roads, the bridges, the tunnels, dams, water reservoirs, accessible medical facilities to the poor in the government hospital, free education in school to poor children are possible because a true Indian Citizen pays the tax with utmost sincerity.

Direct sources of tax are from INCOME FROM SALARY, INCOME FROM OTHER SOURCE, INCOME FROM BUSINESSES are all forms of Direct Tax.

Indirect sources of Tax Liability are GST( goods & service tax), other import and export tax. Indirect tax is the primary source of Government Revenue. Reduction of Tax Liability means reducing your tax payment to the Government on your Source of Income.

There are ways you can reduce your Tax Liability.

TAX EVASION and TAX AVOIDANCE are the two most important ways to minimize the tax burden.

Tax Definition

What are the key points that differentiate them from each other?

TAX EVASION TAX AVOIDANCE
Tax Evasion is entirely illegal and prohibited in the sight of LAW according to INCOME TAX ACT 1961. Tax Avoidance is entirely legal in the sight of LAW.
The assessee does it through illegal and fraudulent activities. It is a form of stealing. It enacts within compliance with the provisions of LAW.
The defaulter will comply with a penalty or punishment. There is no punishment or penalty in performing TAX AVOIDANCE.
TAX EVASION is a CRIMINAL OFFENCE TAX AVOIDANCE is a perfect Legal thing.
Instances of Tax Evasion

  1. Submitting false information on the tax return.
  2. Inaccurate financial statements.
  3. Use fake documents to claim exemption.
Instances of Tax Avoidance.

  1. Health care expenses.
  2. Business expenses are allowed deductions.
  3. Contribution Towards Retirement Benefits.

Tax Evasion must be completely avoided at any cost to protect yourself or your firm from any penalty or punishment and prevent any harm to the firm’s goodwill or the individual. Tax Avoidance is performing within the compliance of LAW by the guidance of an expert.

What are the ways you can save your income through TAX AVOIDANCE?

  1. SECTION 80 E -Complete deduction on the interest on Education Loan.
  2. SECTION 80 D – Medical Insurance Premium Paid for the family or self
  3. SECTION 80DDB– Expenses on medical treatment for self or the family.
  4. 30% standard deduction on NAV (Net Annual Value) on the Income from House Property.
  5. SECTION 80C- Contribution to PPF/ 5 YEARS Fixed Deposit.
  6. SECTION 80 C- Investments in the national saving certificate.
  7. SECTION 80DD – Expenditure on Handicapped dependent.

Conclusion:

Deductions can be the best form of Tax Avoidance. Some of them are mention above. There are eligibility criteria, and the amount deducted criteria is specified according to the law.

It is concluded from the above discussion that Tax Avoidance and Tax Evasion are those concepts that enable a person to avoid liability on his income tax charged. One idea is entirely legal as provided under the Income Tax Act 1961, and another is altogether illegal. For Tax Avoidance, Government has provided various ways to restrain tax on his income legally. In contrast, the Government has given multiple penalties on the concept of Tax Evasion.

Farmil Ansari
Farmil Ansari
Farmil Ansari is a woman dreaming to put her thoughts into words. Farmil is an Introvert but not to the extent that it bridges the gap between her and the people. She loves to do voluntary work. She believes being Empath is a rare treasure in this world. She also writes thoughts and feeling connected deep within the soul on her Social Media Platform. She does not have the ability to Sugar Coat Words. She completed her Post Graduation from Mumbai University. She never was an Extraordinary person but always tried her best to be the best version of herself.

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