TAX PLANNING, TAX

EVASION, TAX
AVOIDANCE
JAYDEEP KUMAR
20-UBH-021
TAX PLANNING

• Tax planning is the analysis of a financial situation or plan to ensure that all elements work together to
allow you to pay the lowest taxes possible.
• Considerations of tax planning include the timing of income, size, the timing of purchases, and planning
for expenditures.
• Tax planning strategies can include saving for retirement in an IRA or engaging in tax gain-loss
harvesting.
TAX EVASION

• Tax evasion can be either the illegal non-payment or underpayment of actual tax liabilities due.
• Tax evasion can be determined by the IRS regardless of whether or not tax forms were filed with the
agency.
• To determine tax evasion, the agency must be able to show that the avoidance of taxes was willful on
the part of the taxpayer.
• While tax evasion is illegal, tax avoidance includes finding legal ways (within the law) to reduce taxpayer
obligations.
TAX AVOIDANCE

• Tax avoidance is any legal method used by a taxpayer to minimize the amount of income tax owed.
• Individual taxpayers and corporations can use forms of tax avoidance to lower their tax bills.
• Tax credits, deductions, income exclusion, and loopholes are forms of tax avoidance.
• These are legal tax breaks offered to encourage certain behaviors, such as saving for retirement or
buying a home.
• Tax avoidance is unlike tax evasion, which relies on illegal methods such as underreporting income.
DIFFERENCE BETWEEN TAX AVOIDANCE AND
EVASION
BASIS TAX AVOIDANCE TAX EVASION
Meaning Minimization of tax liability, by Reducing tax liability by using
taking such means which do not illegal ways is known as Tax
violate the tax rules, is Tax Evasion.
Avoidance.
What is it? Hedging of tax Concealment of tax
Attributes Immoral in nature, which involves Illegal and objectionable, both in
bending the law without breaking script and moral.
it.
Concept Taking unfair advantage of the Deliberate manipulations in
shortcomings in the tax laws. accounts resulting in fraud.
Legal implication Use of Justified means Use of such means that are
forbidden by law
Happened when Before the occurrence of tax After tax liability arises.
liability.
BENEFITS OF TAX PLANNING

• To minimize litigation: To litigate is to resolve tax disputes with local, federal, state, or foreign tax
authorities. There is often friction between tax collectors and taxpayers as the former attempts to
extract the maximum amount possible while the latter desires to keep their tax liability to a minimum.
• To reduce tax liabilities: Every taxpayer wishes to reduce their tax burden and save money for their
future. You can reduce your payable tax by arranging your investments within the various benefits
offered under the Income Tax Act, 1961. The Act offers many tax planning investment schemes that can
significantly reduce your tax liability.
• To ensure economic stability: Taxpayers’ money is devoted to the betterment of the country. Effective
tax planning and management provide a healthy inflow of white money that results in the sound
progress of the economy.
TYPES OF TAX PLANNING

• Short-range tax planning: Under this method, tax planning is thought of and executed at the end of the
fiscal year. Investors resort to this planning in an attempt to search for ways to limit their tax liability
legally when the financial year comes to an end. This method does not partake long-term commitments.
However, it can still promote substantial tax savings.
• Long-term tax planning: This plan is chalked out at the beginning of the fiscal and the taxpayer follows
this plan throughout the year. Unlike short-range tax planning, you might not be offered with immediate
tax benefits but it can prove useful in the long run.
• Permissive tax planning: This method involves planning under various provisions of the Indian taxation
laws. Tax planning in India offers several provisions such as deductions, exemptions, contributions, and
incentives.
 CONCLUSION

• Tax planning is an integral activity conducted by every person earning through salary, professional or
other activities and organizations in India.
• Tax planning is crucial for budgetary efficiency. It facilitates the smooth functioning of the organization
for corporates; a sound financial plan is a must in order to deliver maximum tax efficiency.
• In addition, paying taxes is a method of contributing towards the country’s development.
• During every financial year assessment, be it individual or corporates files taxes and submits the same
to the Income Tax Department of India.