Tax evasion can come in many forms: two examples are cash income that is earned but not reported, and a charitable donation claimed that was not actually donated.
Tax planning uses legal methods to reduce taxes payable as much as possible. There are many ways to reduce taxes legally: some examples include optimizing RRSP contributions, taking advantage of the small business deduction, and declaring business expenses such as a home office or CCA. Effective tax planning has the benefit of being comprehensive, as it takes the entire picture into consideration. Rather, the intention is to come up with a multi-faceted and long-term strategy to consistently reduce your overall tax liability.
Good tax planning is also considered to be the most morally sound and safest option available for reducing taxes. There are many complex and subtle laws applicable to taxation. Many people make the mistake of trying to take the convenient route of reducing taxes, which involves just illegally evading them altogether.
Tax evasion promises immediate financial benefit and convenience, but it also comes with its legal consequences. It is important to understand these consequences and know that there are other, legitimate ways to reduce your tax liability.
This is where the importance of tax avoidance and intelligent tax planning comes in. Through acquiring a more thorough understanding about how taxes work, the laws which apply, and the various legal methods available to legally reduce your tax liability, it is possible to minimise taxes whilst remaining safely within the legal framework of your jurisdiction.
In doing this, it is highly recommended to seek the professional advice of a tax expert. An expert can assess your situation and help you to find the best solutions for legally reducing your taxes. They can also warn you if you are currently engaging in any illegal tax practices. Putting in just a little more time and effort into legitimate tax planning can be hugely beneficial in the long run. You will also be more at ease knowing that you are not operating outside the bounds of the law, and will not be subject to unexpected legal consequences.
Without a customised legal strategy, you put yourself at risk. WhatsApp Chat. Telegram Chat. Skype Call Skype Chat. Offshore Protection Tax Evasion vs.
Tax Avoidance. Table of Contents: 1. What is Tax Evasion? What is Tax Avoidance? Examples include: Making false statements on your tax returns, or providing inaccurate or incomplete information. Exaggerating tax deductions such as business expenses, charitable contributions etc.
In India, taxpayers commonly make use of Section 80C to reduce their tax liability. As per Section 80C, if certain specified investments are made for a specified period, they can avail tax deduction for the same up to a limit of Rs. The primary aim of tax planning is not only to save taxes by any means, but to develop a long term, multi-faceted, logical and legal strategy that continues to channelise your income and optimise your taxes for years and years.
While paying taxes is your duty, you can use provisions within the law to reduce the amount that you pay as tax. Though tax avoidance also helps a taxpayer to minimise the tax liability like tax planning, but it is not as simple, straightforward and advisable as tax planning. The activities in tax avoidance primarily focus on taking unfair advantages of the loopholes or lacunae in the income tax laws and manipulating the accounts in ways that help to avoid the taxes without breaking any rules or laws.
Tax evasion is the activity in which an individual or an organisation deliberately underreports the income, inflates the deductions and shows bogus expenses in order to minimise the tax liability. Moreover, acts like not reporting cash transactions and hiding money in offshore accounts, are also termed as techniques of tax evasion. Unlike tax avoidance which may or may not come under the category of fraud or crime, tax evasion is undoubtedly considered as a crime and the individual or organization opting the means of tax evasion to save the taxes are liable to face prosecution in criminal court and may be given a stringent punishment in the form of a heavy fine or imprisonment or both.
Considering the complications, confusions and technicalities in the taxation system, the knowledge about the taxation process is extremely limited when it comes to regular salaried individuals or even business owners. This lack of information leads the taxpayers whose only priority is to save taxes, unintentionally get involved in tax manipulations or tax frauds.
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