Lecture 3

Tax Planning, Avoidance & Evasion

 Tax Planning, Avoidance & Evasion

 Tax planning – arranging one’s affairs to take advantage of the tax rules in
order to minimize tax liability.

 Tax evasion – illegal manipulation of one’s affairs in order to reduce the

taxes due.

 Tax avoidance – manipulation of one’s affairs within the law in order to

reduce the tax dues.
 Tax Planning

▪ A skilful exercise in creating & implementing strategies to reduce tax

liabilities
▪ A process of analyzing one’s financial situation in the most efficient
manner.
▪ Involves applying various advantageous provisions which are legal and to
avail the various exemptions and deductions.
▪ An art of a logical planning of one’s financial affairs in such a manner that
benefits the taxpayers with all the eligible provisions of the taxation law.
▪ An honest approach of applying the provisions which comes within the
framework of taxation law.
 Tax Evasion

▪ An illegal way to minimize tax liability through fraudulent techniques like

deliberate under-statement of taxable income or inflating expenses.
▪ Done with a motive of showing fewer profits in order to avoid tax
burden.
▪ It involves unlawful practices such as making false statements, hiding
relevant documents, not maintaining complete records of the transactions,
concealment of income, overstatement of tax credit or presenting personal
expenses as business expenses.
▪ Tax evasion is a crime for which the taxpayers could be punished under
the law.
 Tax Avoidance
▪ An act of using legal methods to minimize tax liability.
▪ Although it is a legal method, it is not advisable as it could be used for one’s own
advantage to reduce the amount of tax that is payable.
▪ Tax avoidance is an activity of taking unfair advantage of the shortcomings in the
tax rules by finding new ways to avoid the payment of taxes that are within the
limits of the law.
▪ Tax avoidance can be done by adjusting the accounts in such a manner that there
will be no violation of tax rules.
▪ Tax avoidance is lawful but in some cases it could come in the category of crime.
▪ E.g. Profit shifting, Transfer Pricing.
Tax Planning, Tax Evasion & Tax Avoidance
Your Task

Tax Planning is an important aspect of a business and is used commonly to

legally reduce taxes. But sometimes the lines between tax evasion and tax
avoidance is not very clear.

Distinguish between a tax planning, tax avoidance and a tax evasion.

Thanks!
Any questions?
!