What is tax evasion and tax avoidAnce?
1. Tax evasion is an illegal attempt to reduce the tax payable by deliberately under-reporting or not reporting taxable incomes or concealing one’s true state of affairs from tax authorities. Tax evasion is a criminal offence and if detected is punishable by financial penalties or even by imprisonment or both. 2. Tax avoidance means preventing or reducing one’s tax liability through manipulations within the framework of existing tax legislation. Tax avoidance, as against tax evasion, is legally permissible and hence a legitimate aim of taxpayers. 3. Tax avoidance is resorted to through such devices as formation of holding companies to claim artificial deductions, constitution of trusts and family partnerships, transfer of income earning assets to one’s wife and children for fractioning income for tax purposes, investing in provident funds and life insurance policies, and manipulation of capital gains. 2. Methods of Evading Taxes 2.1 The following devices are generally employed to evade
