Key Differences Between Tax Planning, Tax Avoidance and Tax Evasion

# Differences between Tax Planning and Tax avoidance:-
 Basis of difference Tax Planning Tax Avoidance
MeaningIt refers to the arrangement of a person's financial affairs in such a way that assessee gets full benefit of all permissible deductions and exemptions as per law.Tax Avoidance is an exercise of reducing tax liability by exploiting some loopholes of the taxation laws.
IntentionIt involves fear of obedience of law with an honest attitude.It involves foul play with the law by dodging the tax authorities.
NatureLegal and moralLegal but immoral
What is itIt is the saving of taxIt is the dodging of tax
Nature of transactionsIn tax Planning, transactions are real and natural.Transactions are Sham and are fabricated artificially.
Time horizonTax planning is long term Tax avoidance is a short term measure
MotiveTax Planning has a Bonafide motiveTax avoidance has a malafide motive
ObjectiveTo reduce tax liability, by complying to the letter and spirit behind the law.To reduce the tax liability by complying to the letter of the law only.
Permissible by lawTax planning is permissible by lawTax avoidance is not permissible under law
Legal implicationIt uses the advantages provided under the tax lawsIt uses the shortcomings of the tax laws
Examples1. Claiming various deductions under section 80c to 80u.
2. Investments in SEZ undertakings.
1. Use of colourable devices.
2. Mis-representation or manipulation of facts.

# Differences between Tax Avoidance and Tax Evasion:-
 Basis of difference Tax Avoidance Tax Evasion
MeaningTax avoidance is an attempt to reduce tax liability by exploiting some loopholes of the taxation laws.Tax evasion is an illegal method of saving tax by:
¡. Disclosing less income than actual
¡¡. Concealing the sources of income and,
¡¡¡. Claiming deductions that are not allowed.
Legal implicationsTax avoidance may be within the framework of law but it is against the basic intent of the legislative provisions.Tax evasion is gross violation and respect of law.
DealingTax avoidance can be curbed by introducing anti-avoidance provisions or clubbing provisions.Tax evasion can be curbed by implementing law effectively.
IntentionTax avoidance is done through malafide intention but by complying the provisions of law.Tax evasion is wilful non-compliance with law and the evader attracts heavy penalties.
Time of executionIt looks like Tax Planning and is done before the tax liability arises.Tax evasion is a huge fraud and is done after the tax liability has arisen.
MethodsTax avoidance involves:-
1. Use of colourable devices.
2. Mis-representation or manipulation of facts etc.
Tax evasion involves:-
1. Smuggling
2. Fake documentation
3. Storing black money etc.
ExampleTransfer of income, arising out of house property by a husband to his spouse with an intention to avoid tax liability (or to reduce taxes).Failing to pay the the due taxes,  submitting false income tax returns etc.

# Differences between Tax Planning and Tax Management:-
 Basis of difference Tax Planning Tax Management
ObjectiveThe objective of tax planning is to minimise the tax liability using fair means.The objective of tax management is to comply with the provisions of income tax laws and its allied rules.
ScopeTax Planning also includes tax management.Tax management deals with filing of returns on time, getting the accounts audited, deducting TDS etc.
DealingTax planning relates to future.Tax management relates to past, present and future.
Past- Assessment proceedings, appeals, revisions etc.
Present- Filing ITR, payment of advance tax etc.
Future- Taking corrective action.
MotiveTax Planning helps in minimising the tax liability in short term and in long term.Tax management helps in avoiding payment of interest, penalties, prosecutions etc.
Necessity vs. optionalTax planning is optional.Tax management is essential for every assessee.

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