SUBMISSION OF PROJECT:

TAX EVASION IN INDIA: A STUDY OF ITS IMPACT ON

REVENUE OF THE
GOVERNMENT
Submitted by:
. Jatin Grover

Symbiosis law school, Noida

Jatin.grrover3@gmail.com

Contents

s.no Topic Name Pg no.

1 Abstract & Introduction 2

2 Research objectives 2

3 analysis 3

4 Conclusion 3

Abstract
Taxation is the primary source of funding for the government and the compulsory public contribution. Tax
evasion is an illegal behaviour that increases income disparity, stifles economic growth, and generates economic
instability. Tax evasion is generally linked to the informal economy. Income distribution inequality widens both
the tax gap and the amount of undeclared income for individuals. This is the sum of all disparities between the
reported amount and the amount to be reported. This essay seeks to clarify the relationship between tax revenue,
government revenue, and tax evasion. On the other side, the paper investigates the concept of tax avoidance and
discusses the legal mechanisms by which a person or a business organisation can use tax rules to lessen the
amount of taxes owed. These two actions are on a spectrum that renders a state's tax structure unfavourable. In
the end, tax evasion significantly diminishes the government's income stream, whereas tax avoidance and tax
evasion decrease it. Even when taxes are significantly reduced, many people still view paying taxes as a

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hardship, according to the magazines. This may be the result of citizens feeling that the government is not
making the best use of their taxes or that the tax rate is excessive.

Key words: taxation, noncompliance, parallel economy, informal economy, and tax evasion.

INTRODUCTION
The criminal act of avoiding taxes and refusing to pay taxes is known as tax evasion. There is a significant
discrepancy between the amount of taxes owed and the amount paid. Dr. Devirajappa (2017) investigated how
tax evasion affected the government's revenue. The amount of tax evasion in India and the actions of its
government. As he discovered, the2008–2009 saw the biggest amount of taxes avoided ever recorded and had
the lowest amount of tax recorded during 2002 and 2003avoided. The practice of avoiding taxes by using lawful
means to lower a person's financial situation to reduce taxes, particularly income to be paid in tax He also
discovered that an effective and transparent tax collection mechanism is necessary to close the income gap.
Legal actions and purchases made in compliance with tax laws are examples of tax avoidance. And Laliwadhwa
According to Vivender Pal (2012), excessive tax rates and ineffective tax authorities are the primary reasons for
tax avoidance. They looked for a connection between tax officials as well as evading taxes. They concluded that
tax law simplification and closing legal loopholes is the best method to cut down on the quantity of money
avoided. The most popular means of tax avoidance is through employee-sponsored retirement plans. Money.
Legal exceptions can allow one avoid paying taxes. The term "tax evasion" refers to the actions taken by
individuals, firms' trusts, and other entities in order to avoid paying taxes by methods that are both unlawful and
unfair. In most cases, tax evasion occurs when taxpayers intentionally conceal their incomes from the entities
that are responsible for collecting taxes in order to lower the amount of tax that they are required to pay. Tax
evasion occurs when individuals submit dishonest tax information, which may include declaring a lower amount
of gains, earnings, or income than what has really been received, and they may even go so far as to overstate
their deductions.

Research objectives

1) Researching the idea of tax avoidance

2) to quantify the level of tax avoidance.
3) Determine the effects of tax avoidance in India

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Analysis
It looked at Tax dodging is the main reason why the government doesn't get much money. Most developing
countries around the world have tax systems that don't work well and have dishonest tax workers. This makes it
easy for people to avoid paying their taxes. This leads to keeping track of the money and creating a secondary
market. The tax code, along with Should a country's needs change, the amount of money it collects must also
change. To lessen the effects of tax evasion, it is important to make the punishments for these crimes harsher
and lower the number of people who do not pay their taxes. Tax payments are something that everyone worries
about, no matter how much money they have. Avoiding or putting off paying taxes is illegal and is called tax
fraud. There is a big difference between how much tax was paid and how much tax was owed. As part of his
research, Dr. Devarajappa looked into how much tax cheating there is in India and how it affects the
government's income. Based on his research, the highest documented number of tax evasions happened nonstop
from 2008 to 2009, while the lowest documented number of tax evasions happened at some point between 2002
and 2003. Avoiding paying income tax is known as tax evasion. This is when someone uses possibly illegal
methods to hurt their finances so they don't have to pay that tax. Most of the time, this is done by using legal and
possible tax credits and deductions. People often mix up tax dodging and evasion. Stuart P. Inexperienced
looked into the moral and mental effects of tax dodging in 2009, focusing on how fundamentally immoral the
people who did it were. As the author pointed out, most people thought that tax dodging was wrong, but they
did it because they thought the government wasn't working well and tax rates were too high. There are four main
factors that have a big effect on tax evasion. These are demographic factors (like education, employment status,
and age); lifestyle and behavioural factors (like difficulty, fairness, contact with sales authorities, tax-compliant
friends and morale); criminal and institutional factors (like regulation); and finally, financial factors (like
income level, profit source, marginal tax prices, penalties, and chances of being caught). Tax dodging is mostly
caused by the fact that many people have to pay high taxes. This is because higher tax rates make tax cheating
more appealing and profitable, even though it comes with risks. The government is very limited in its options
when it comes to how to get extra resources in case of an emergency because of the high amount of taxes that
are in place. In order to make real changes, the top marginal rate of income tax, which includes the fee, must be
lowered. The lower tax rates should be put in place at the same time.
It would be better to cut down on the number of licencing and control measures and put together a group of
knowledgeable people to look into how well the current systems for permits, licences, and restrictions are
working. What the committee would have to do is suggest that steps that are no longer needed be taken away.
This group can also suggest changes to current laws and procedures to make sure that important economic
restrictions are put in place in a way that is easier for everyone and causes them the least amount of trouble.
Also, keeping an eye on the money that people give to political parties
Stopping any kind of cheating in the government is an important issue that needs to be dealt with right away. So,
getting rid of the rule that says businesses can't give money to political groups is not supported. The government
needs to give reasonable grants-in-aid to national political parties. There should be clear guidelines for
identifying these parties and figuring out how much grant-in-aid each one should get. There is a chance that
political parties would have to voluntarily release and examine their financial records every year, regardless of
how the government feels about funding political parties. If someone gives money to political groups, they
should be able to deduct up to 10% of their total income, but not more than 10,000 rupees. It is suggested that a
deduction of 30% of the gift amount be set up so that it meets the requirements.

Conclusion

Among the fundamental reasons for the government's low revenue, tax evasion is the major contributor. It is
estimated that the majority of developing nations around the world are victims of tax evasion. This is mostly
attributable to the presence of tax collectors who lack integrity and an inefficient tax system. A secondary
market is created as a consequence of this, and money is accounted for as a result. It is necessary to make
adjustments to the levels of financial collection in addition to the tax code in the event that a nation's
requirements change. It is important to implement stiffer penalties for such violations and reduce the rate of tax
evasion in order to limit the extent of tax evasion. This would provide a means of mitigating the situation. The
payment of taxes is a matter of worry for every single person, regardless of their current financial situation. It is
possible that this is because their taxes are not collected by the government.

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After gaining an understanding of the negative outcomes that are connected with tax evasion, it is the
responsibility of every individual to contribute to the efforts of the government by sticking to the rules for
paying taxes and making payments on time. The transformation of a single drop of water into an ocean is a well-
known fact; similarly, our relatively insignificant contribution to the advancement of economic development has
a large and significant impact on the economy. Let us not merely wait for change to happen; rather, let us take
on the role of change agents who are able to bring about great advancements by meeting our commitments in a
timely manner. If all people communicate in the same language, the possibility that any organisation or
authority will take advantage of us is extremely low, if not nonexistent. In light of this, let us first fulfil our
obligations, and then proceed to assert our rights thereafter.
In addition, it is essential to educate the general people on the Indian tax law and to cultivate an environment
that encourages individuals to fulfil their tax obligations with pride, to refrain from engaging in tax evasion, and
to fulfil their obligation to pay taxes.