Question 1 Distinguish between ‘tax evasion’ and ‘tax avoidance’.

 

Answer:

• Tax evasion means a method of evading tax liability by dishonest means like suppression, conscious violation of rules, inflation of expenses etc. while tax avoidance means planning for minimization of tax burden according to the provisions of the tax laws and within legal framework, though it defeats the basic intention of legislature.

 

• Tax evasion generally begins after the liability of tax has arisen, whereas tax avoidance begins before the actual liability of tax has arisen.

 

• Tax evasion involves use of unfair means while tax avoidance takes into account various lacunas of law.

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Question 2 :Distinguish between tax planning and tax evasion.

 

Answer :

• Tax planning is carried out within the framework of law by availing the deductions and exemptions permitted by law and thereby minimising the tax liability. Tax planning is an arrangement by which full advantage is taken of the concessions and benefits conferred by the statute, without violation of legal provisions

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• Tax evasion on the other hand is an attempt to reduce tax liability by dubious or artificial methods or downright fraud. It is illegal and denies the state its legitimate share of tax