The growing instances of accumulating huge unaccounted money or black money has made it necessary to specify the differences between tax Avoidance and Tax evasion, and help assesses save tax within the legal framework and be a responsible citizen.
With the terms Tax Avoidance and Tax Evading used synonymously by many tax advisers and consultants’ government noticed that only one percent of the total population is filing their tax returns in the recent years.
Paying a considerable part of your income as taxes to the government is always a painful thought. Not many people like to part with their hard-earned monies! However, as a responsible citizen it is your duty to file your returns, of course you can use legally accepted methods to lessen the tax burden.
Government encourages savings by offering many tax sops, and offers tax exemption on such savings to a certain extent. Still, many resort to illegal tax evasion and tax avoidance, which defeats the purpose of lawmakers in brining tax laws. This results in creation of un-accounted money also known as black money.
Such actions not only result in economic imbalance, but also creates a parallel economy weakening many of the government’s schemes to control inflation, etc. Governments impose tax by bringing in a law, and utilize the tax money to develop infrastructure and to pay salaries for the employees, etc.
Tax Planning helps Reduce Tax Burden Legally
Tax planning at a very early stage helps you save your money by lessening the tax burden and respecting the laws of the land. Governments offer incentives in the form of lower tax rates, or complete tax exemption for investing in certain infrastructure bonds, etc. In India, under section 80 C, you can save up to 150,000 by investing in such bonds claiming standard deduction. Some popular investment avenues for tax saving purposes include National Saving Certificates (NSC) Public Provident Fund (PPF), Provident Fund (PF) Specified Mutual Funds, and Fixed Deposit that offers tax savings. Tax Planning is encouraged and a very legal method to reduce your tax burden.
Tax Avoidance Nothing Illegal, still defeats the Purpose of Tax Laws
Many Tax consultants, accountants, legal advisors with an understanding of the legal system, tax laws make use of the loopholes in the tax laws to help you lessen the tax burden, though it is not illegal, it defeats the purpose of levying taxes.
Your tax consultant may suggest that you take advantage of certain deductions or tax advantages that are legal, but which do not apply to your case. There cannot be any legal implication of taking such advantages, but it amounts to misuse of certain provisions offered by the government in good faith. Governments’ constantly try to reduce the instances of such manipulation by bringing in rules that are more stringent.
Tax Evasion is illegal and Punishable
While tax planning is encouraged and legal, tax avoiding is discouraged though legal, Tax evasion is a crime and results in monetary and other forms of punishments in many countries. Assesse, deflate their income and show higher expenses to avoid taxes, which is illegal. Reducing tax burden this way, is tax evading and results in creation of unaccounted money that government has no knowledge of and defeats governments’ initiatives to curb inflation, etc.
Government keeps a vigilant eye on Tax Avoidance and Tax Evasion by tracking transactions of higher amounts, the origins and the destination of monetary transactions etc.