TAX AVOIDANCE:
- Tax avoidance is the use of legal methods to minimize the amount of income tax to be paid by an individual or a business.
- This is generally accomplished by claiming as many deductions /manipulating the law and credits as is allowable under the law.
- As it is not illegal so this method is used by individuals to manipulate the tax payments without any legal implications
- As per law, it is not illegal so Governments across the world are planning to adopt legal provisions to check this.
- GOI has institutionalized General Anti Avoidance Rule (GAAR) to check Tax Evasion.
- At global level , countries are adopting Base Erosion Profit sharing (BEPS) to tackle Tax Evasion.
TAX EVASION:
- Tax evasion is an illegal activity in which an individual or organization deliberately avoids paying a true tax liability.
- It is a criminal activity for which the assesse is subject to punishment under the law of the land.
- It involves acts like deliberate misrepresentation of material /income, Hiding important documents, Not maintaining complete records of all the Economic transactions, Making false statements to hide economic transactions, Smuggling and Using fake documents to claim exemption.
- Tax Evasion leads to generation of Black Money.
Income-tax Act, 1961 and
Tax Evasion:
The Act defines certain activities as illegal which can attract hefty penalties and even land you in jail. Following activities under IT act are said to be illegal :
- Not filing Income tax return,
- Not providing PAN or quoting wrong PAN ,
- Not paying taxes as per self assessment and
- Concealing income to avoid paying of taxes.
BLACK MONEY:
- The money that is hidden from tax authorities which can be either money earned from illegal activity or unaccounted/unreported money from legal activity.
- Black money may be generated either by illegitimately drug trade, terrorism, corruption, or legitimate failure to pay the taxes to the government.
- Different terms are used for black money in an economy like unaccounted income, underground income, black wealth, or in economy terms it is known as parallel economy, black economy, shadow economy and unofficial economy.
