Tax avoidance involves the process of managing finances in a way by which the individual is able to reduce his tax liability. Tax avoidance is a method of exploiting the laws to one’s advantage. Tax avoidance has benefitted a large number of entities starting from small business houses to large business enterprises to help reduce the tax liability. This can be achieved by taking advantage of some existing provisions or by making use of lack of provisions in the laws of the country.
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Tax avoidance is a method of using the loopholes existing in the laws in order to save taxes. Tax avoidance is generally used by big business houses and companies who make use of such loopholes, deductions and tax rates in order to reduce the tax burden borne by these companies.
Tax avoidance is done without breaking any laws or rules under the income tax act. The main objective of tax evasion is to save a large amount of money by taking advantage of the loopholes present in the income tax acts.
There are some significant differences between tax avoidance and tax evasion. Tax evasion is the practice of avoiding taxes which occurs mainly if the taxpayer shows wrong tax assessment or totally avoids paying taxes. Tax evasion is possible when an individual is running a non-registered business or is selling goods but not providing proper receipts.
Tax avoidance involves the method of carefully examining the laws and exploiting the loopholes in the system. Tax evasion is illegal in India whereas tax avoidance is not an illegal practice. An individual cannot be blamed for avoiding taxes, however if a person willingly evades taxes, he is liable to pay a huge penalty along with interest or is even penalized with a jail term.
SEE ALSO: All You Must Know About Tax Planning
Listed below are some of the commonly used tax avoidance strategies:
SEE ALSO: How To Reduce Income Tax In India?
Tax avoidance is not illegal in India. Tax avoidance is generally done by finding loopholes in the legal provisions. So, a person is not breaking any laws. The activities are carried out in compliance with the law. An example of tax avoidance is that the government allows deduction on certain charitable contributions. In case you have paid any amount to a charity then you can claim deductions while filing income tax returns for the given financial year, provided the donation enjoys tax benefits.
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