Tax Avoidance And Tax Evasion

SHORT NOTES ON:- TAX AVOIDANCE AND TAX EVASION INTRODUCTION:-

The terms "tax avoidance" and "tax evasion" are often used interchangeably, but they are very different concepts. Basically, tax avoidance is legal, while tax evasion is not.

In the case of IRC v Duke of Westminster [1936] AC 1, Lord Tomlin stated: “Every man is entitled, if he can, to order his affairs so that the tax attaching under the appropriate Acts is less than it otherwise would be. If he succeeds in ordering them so as to secure this result, then, however unappreciative the Commissioners of Inland Revenue or his fellow-taxpayers may be of his ingenuity, he cannot be compelled to pay an

It is up to SARS to employ the provisions at its disposal to counter measures where a taxpayer crosses the line and becomes more than just a shrewd tax planner.

What Is Tax Avoidance?

Tax avoidance is the legitimate minimizing of taxes, using methods approved by the IRS (Indian Revenue Services). Businesses avoid taxes by taking all legitimate deductions and by sheltering income from taxes by setting up employee retirement plans and other means, all legal and under the Internal Revenue Code or state tax codes. Some Examples of Tax Avoidance:

1. Taking legitimate tax deductions to minimize business expenses and thus lower your business tax bill. 2 Setting up a tax deferral plan such as an IRA, SEP-IRA, or 401(k) plan to delay taxes until a later date. 3. Taking tax credits for spending money for legitimate purposes, like taking a Work Opportunity Tax Credit .

What is Tax evasion?

Tax evasion, on the other hand, is the illegal practice of not paying taxes, by not reporting income, reporting expenses not legally allowed, or by not paying taxes owed.

Essentially, tax evasion amounts to using illegal means to reduce

The purpose of the disguise is parties. The parties wish to hide the fact that their real agreement or transaction falls within the prohibition or is subject to the tax, and so they dress it up in a disguise which conveys the impression that it is outside of the prohibition or not subject to the tax.’

WHAT IS THE DIFFERENCE?

TAX AVOIDANCE AND TAX EVASION:-

1. Tax avoidance takes into consideration the loopholes of the law whereas Tax evasion is an attempt to evade tax liability with the help of unfair method.

2. Tax avoidance is the tax hedging within the framework of the law whereas tax evasion is a tax omission. 3. Tax avoidance has legal sanction whereas tax evasion is unlawful and assessee guilty of evasion may be punished under relevant laws. 4.Tax avoidance is intentional tax planning before the actual tax liability arises whereas tax evasion is intentional attempt to avoid payment of tax after the liability to tax has arisen. planning arrangements are open to attack or context or not, whenever a tax benefit allowable limits set by