Concepts of Tax Planning:

The prime objectives of tax planning are as follows:

Reduction of tax liability

Minimization of litigation
Productive investment
Healthy growth of economy
Economic stability

How tax payers minimize tax liability:

Tax evasion
Tax avoidance
Tax planning

Tax Evasion: This is a dishonest means which are

Concealment of income
Inflation of expenses and suppress income
Falsification of accounts
Conscious violation of rules.

The above means are unethical, attracts penalties and

prosecution.

Tax avoidance: Minimising the incidence of tax by adjusting the affairs in such a
manner that although it is within the four corners of the
taxation laws but the advantage is taken by finding out
loopholes in the laws. The shortest definition of tax avoidance is
that it is the art of dodging tax evasion without breaking the law.

Tax Planning: Tax planning is the arrangement of financial activities in such a

way that maximum tax benefits are enjoyed by making use of all
beneficial provisions in the tax laws. It entitles the assessee to
avail certain exemptions, deductions, rebates and reliefs, so as
to minimize tax liability. This is permitted and not frowned
upon. It is legitimate provided it is within the framework of law.
Colourable devices (dubious methods) cannot be part of tax
planning and it is wrong.

Tax Management:

Refers to the compliance with the statutory provisions of law. Tax planning is
optional, tax management is mandatory.

It includes maintenance of accounts, payment of taxes, filing of return,

deduction of tax at source, timely payment of advance taxes, etc.

Tax management is first step towards tax planning.