Tax planning & tax avoidance

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Querist : Anonymous

Querist : Anonymous (Querist)

14 September 2012 Dear All,

plz explain the diff between tax planning & tax avoidance. both are seem as same.

SANYAM ARORA

SANYAM ARORA (Expert)
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14 September 2012 Tax Planning can be defined as taking all the advantages of Tax Exemptions,deductions,concessions, Rebates under the Income Tax Act 1961, so that our tax burden is minimized.

For instance, tax planning can be done by investing in specified permissible avenues eligible for deduction under section 80C or investment in an SEZ unit.

SANYAM ARORA

SANYAM ARORA (Expert)
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14 September 2012 Tax avoidance is reducing or negating tax liability in legally permissible ways by structuring one's affairs. Any such transaction would be valid only if it has commercial substance and is not a colourable device. The Supreme Court, in M/s McDowell and Co Ltd Vs Commercial Tax officer, 1985, (154 ITR 148(SC), held that for tax planning to be legitimate it must be within the legal framework and colourable devices cannot be part of tax planning. In deciding whether a transaction is a genuine or colourable device, it is open for the tax authorities to go behind the transaction and examine the "substance" and not merely the "form".

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SANYAM ARORA

SANYAM ARORA (Expert)
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14 September 2012 Tax Evasion

Dishonest taxpayers try to reduce their taxes by concealing income, inflation of expenses, falsification of accounts and willful violation of the provisions of the Income-tax Act. Such unethical practices often create problems for the tax evaders. Tax department not only imposes huge penalties but also initiate prosecution in such cases.

SANYAM ARORA

SANYAM ARORA (Expert)
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14 September 2012 Tax Avoidance

Tax avoidance is minimizing the incidence of tax by adjusting the affairs in such a manner that although it is within the four corners of the laws, it is done with a purpose to defraud the revenue. It is the act of dodging without directly breaking the law. For example if A gives gift to his wife, the income from the asset gifted will be clubbed in the hand of A. But to avoid this clubbing provision “A” decides to give gift to B’s wife and B reciprocates it by giving gift to A’s wife. This is not tax planning but tax avoidance. Such practices are not acceptable. In the words of Justice Rangnath Misra of Supreme Court in the case of McDowell & Co Limited v CTO

SANYAM ARORA

SANYAM ARORA (Expert)
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14 September 2012 If you have any further query, you can mail me at sanyam.arora27@gmail.com

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Querist : Anonymous

Querist : Anonymous (Querist)

15 September 2012 if you give more example, then it will be more helpful to understand this.

CA AYUSH AGRAWAL

CA AYUSH AGRAWAL (Expert)
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02 July 2013 I Think This will be Helpful for you.

http://www.slideshare.net/ManishPunjabi1/tax-planning-in-india

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Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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07 October 2021 1. https://www.exidelife.in/funds/knowledge-centre/blogs-and-articles/what-is-tax-evasion-tax-avoidance-and-tax-planning

2. https://www.rhncpa.com/tax-planning-vs-tax-evasion-do-you-know-the-difference/