Tax planning is an important aspect for conducting any business as well as for salaried persons. But at times it gives rise to “tax avoidance” and “tax evasion”. Though similar to hear “tax avoidance” and “tax evasion” are not same and identical in nature.
Tax avoidance makes your tax bill low through the method of controlling your transactions in order to enable you to gain maximum amount of tax benefits. Tax avoidance is not an illegal act in that sense.
Tax evasion is an attempt to decrease your tax liability by means of fraud or by any active concealment. It is a criminal act in itself.
Differences between the two:
Tax avoidance on many occasions goes beyond its boundaries and becomes tax evasion which is illegal in nature.
While tax evasion can be done by failing to declare your income from other sources, but tax avoidance needs prior planning.
Law treats tax evasion in a different way from tax avoidance.
How to minimize your tax liabilities:
Every person wants to pay the minimum tax which is possible for him without getting into any illegality. One can reduce his tax bill by approaching from two sides, firstly by lowering his total income and secondly by availing deductions. Therefore one can lower his tax liabilities by the following methods, such as,
- Lowering his taxable income;
- Availing maximum amount of tax deductions and credits; and
- Controlling the time period of income and deductions.
For reducing the amount of tax you require to pay, it is always tax credits as better options than tax deductions.
Differences between a civil wrong and a crime:
In any kind of a civil wrong it is not necessary to have an ill motive. But on the other hand, a crime is an act done against the duties of any person towards the community. Many crimes have their origin in common law, whereas the rest are made by statute.
In a criminal act mens rea or a guilty mind is an essential ingredient.
Tax evasion as a serious crime in India:
The Government of India has given a serious thought for declaring tax evasion as a criminal offence with consequences like fine and / or imprisonment.
In the law of taxes a particular intention to evade tax which a taxpayer knows or has reason to believe that he is liable to pay is an essential ingredient of fraud.
In USA Tax evasion is treated as a criminal offence which leads to penalty or even imprisonment. Again it is necessary to prove the presence of a specific intention to evade tax.
In India it is extremely necessary to rewrite the law and strengthen the tax authorities. The public mood is now against any kind of tax evasion.