Tax Evasion Research Paper

The terms tax avoidance and tax evasion are frequently used by us in day to day conversation without knowing the literal meaning of these terms but there is a very fundamental difference between tax avoidance and tax evasion. The term tax avoidance means management of one’s own financial affairs in such a manner as to reduce tax liabilities without violating laws. Whereas tax evasion is reduction in tax liabilities by illegal means. Tax avoidance is perfectly legal and it is permissible under taxing statutes whereas tax evasion is illegal and it contains certain risks of legal consequences such as prosecution under tax laws and fine etc. Taxation is a very old concept for India and it can be traced back in Manu smriti and Arthashastra. The

This problem is as old as the concept of levying taxes. Mostly the problem of tax evasion arises in cases of direct taxation. The problem of tax evasion is found specially in the cases of business, profession and vocation where the income is not deducted at source. In early days of implementation of Income Tax Act,1961 the tax rate was considerably quite low and hence people did not use unfair tools or colourable devices to reduce their tax liability but with growing tax rates in country the use of colourable devices for understating the income has been emerged as a serious problem before taxing authorities. However, the tax avoidance is legal and permissible but it is not considered good for the economy because it reduces the revenue of the country. So far as the problem of tax evasion is concerned it is also not good for the economy it may result in generating black money and ultimately may lead towards inflation. It is quite relevant to discuss here the causes of tax avoidance and tax evasion because without knowing the cause of a problem it is not possible to remove such problem from the society. A number of factors are responsible for the problem of tax avoidance and tax evasion. The reason behind considerable tax avoidance may be exclusion of the agricultural income from tax net and special privileges given to Hindu Undivided Family, although the government has prescribed high tax rates on one person in the HUFs now, but it is still not sufficient to solve the problem of tax avoidance in the case of HUF because income may be divided into several forms among the family members in order to escape from tax liabilities and it is a difficult task for the authorities to bring such income within the purview of tax net. “A number of factors such as complicated tax structure, frequent amendments, shortage of personnel, high tax rates, non-levy of deterrent penalties,