Tax Evasion

Tax Evasion

Tax evasion refers to an exercise / attempt by a taxpayer for not paying the tax legally due. It is an illegal method of saving tax and makes the person liable to penalties and prosecution. Tax evasion is considered as a "white collar crime" and leads to generation of Black money. The tax evasion is resorted to by applying following dishonest means:-

1. Under disclosure of income
2. Inflating the expenditure
3. Manipulation of accounts
4. Willful violation of rules
5. Benami transactions etc. 

Reasons for tax evasion (why people resort to tax evasion ?)

1. High tax rates (progressive taxation system)
2. Complicated taxation laws and filing mechanism
3. Rampant corruption
4. Absence of sound social security system
5. Weak surveillance mechanism
6. Lack of transparency in government spendings
7. Inflation
8. Absence of effective judiciary

Various tools of tax evasion:- These are some of the ways in which people may avoid or evade tax liability :-

1. Failing to pay the tax dues
2. Smuggling
3. Submitting false income tax returns
4. Inaccurate financial statements
5. Using fake documents to claim exemptions
6. Non reporting of certain taxable incomes
7. Bribery
8. Storing wealth outside the country adopting illegal means
9. Tax havens
10. Participatory notes (PNS)
11. Investment through complex derivative instruments with an intention to evade tax.

Penalties for tax evasion:- There are various penalties that the income tax department can impose on anyone who is found guilty of evading or avoiding taxes. These penalties also apply to companies that either, fail to report and pay their own taxes or fail to deduct tax at source when they are supposed to do so. Some of these may be as follows:-

1. Collecting 100% to 300% of that tax when income is not disclosed.
2. In case of failure to pay the taxes due, the assessing officer may impose a penalty amount but it cannot exceed the amount due in taxes.
3. If an individual fails to file the income tax returns within the time allotted, then a penalty of ₹200 per day may be charged for everyday till the returns are filed.
4. In case a person or a company fails to maintain their accounts properly as directed by section 44AA, a penalty of ₹25000 may be levied.
5. If a report from an accountant is not provided as directed, then a fine of ₹100000 may be levied.
6. If a company fails to provide auditor's report, then a penalty of ₹1.5 lakh or 0.5 % of the sales turnover, whichever is less, may be charged.
7. In case an organisation fails to deduct tax where it is supposed to do so while making payments, then the penalty could be payment of the tax due.

                               These are only some of the penalties that can be levied by the Income Tax department. In some cases, it can be a hefty sum to pay so, best thing to do is to ensure that all taxes are paid as and when they are due.

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