Tax Planning, Tax Evasion, Tax Avoidance, Tax Mitigation - Income Tax - Ready Reckoner - Income Tax

Tax Planning Availing tax exemptions or tax privileges offered by the government strictly in accordance with law. Attempts at tax planning or methods such as availing of the various benefits and concessions provided under the tax laws should not be shunned as unethical or anti-social. But those types of tax avoidance which violate the spirit and intention of the law and at times border on tax evasion are certainly disapproved. Tax Evasion and Tax Avoidance The Direct Tax Enquiry Committee (Wanchoo Committee) has tried to draw a distinction between the two items in the following words. Tax Avoidance A large variety of shades in the methods of tax avoidance itself, depending upon the ingenuity of the device adopted, the degree of violation of the spirit of the law sought to be circumvented, and the genuineness of the financial arrangement arrived at some of the arrangements may be quite genuine, fair and legal and may be nearer to tax planning. Tax Evasion Tax evasion and black money are closely and inextricably inter-linked While tax evasion leads to the creation of black money, the black money utilised secretiveiy in business for earning more income inevitably leads to tax evasion. While all tax evaded income represents black money in a broad sense, all black money does not necessarily originate in tax evasion. Manoeuvre invloving an element of deceit, misrepresentation of facts, falsification of accounting calculations or downright fraud. In simple terms, tax evasion refer to any attempt to avoid payment of taxes by using illegal means. The problem of tax evasion is, however, not peculiar to our country,. It exists the world over, as is evident from a study of the tax laws of the various countries and the administrative set-up for effective enforcement of such laws. Tax Mitigation Tax mitigation is a situation where the taxpayer uses a fiscal incentive available to him in the tax legislation by submitting to the conditions and economic consequences that the particular tax legislation entails. An example of tax mitigation is the setting up of a business undertaking by a taxpayer in a designated area such as a Special Economic Zone (SEZ). In such a case the taxpayer is taking advantage of a fiscal incentive offered to him in the SEZ provisions in the Income-tax Act e.g., setting up the business only in the SEZ areas and exporting from the SEZ area. Tax mitigation is, thus, allowed under the tax statute.