Difference Between Tax Avoidance and Tax

Evasion
May 16, 2015 By Surbhi S 1 Comment

Every
assessee wants to escape from paying taxes, which encourages them to use
various means to avoid such payment. Tax Avoidance and Tax Evasion are two
techniques which are used by many people to reduce their tax liability. They do so
by taking expert advice. Tax Avoidance is completely lawful while Tax
Evasion is considered as a crime in the whole world.

In spite of many differences in the two practices, people use

them interchangeably which is incorrect. So, this article will help you to know the
significant differences between Tax Avoidance and Tax Evasion.

Content: Tax Avoidance Vs Tax Evasion

1. Comparison Chart

2. Definition

3. Key Differences

4. Conclusion

Comparison Chart
 BASIS FOR
TAX AVOIDANCE TAX EVASION
COMPARISON

Meaning Minimization of tax liability, by taking Reducing tax liability by

such means which do not violate the tax using illegal ways is known
rules, is Tax Avoidance. as Tax Evasion.

What is it? Hedging of tax Concealment of tax

Attributes Immoral in nature, which involves Illegal and objectionable,

bending the law without breaking it. both in script and moral.

Concept Taking unfair advantage of the Deliberate manipulations in

shortcomings in the tax laws. accounts resulting in fraud.

Legal implication Use of Justified means Use of such means that are
forbidden by law

Happened when Before the occurrence of tax liability. After tax liability arises.

Type of act Legal Criminal

Consequences Deferment of tax liability Penalty or imprisonment

Objective To reduce tax liability by applying the To reduce tax liability by

script of law. exercising unfair means.

Definition of Tax Avoidance

An arrangement made to beat the intent of the law by taking unfair advantage of
the shortcomings in the tax rules is known as Tax Avoidance. It refers to finding
out new methods or tools to avoid the payment of taxes which are within the
limits of the law.

This can be done by adjusting the accounts in a manner that it will not violate any
tax rules as well as the tax incurrence will also be minimised. Formerly tax
avoidance is considered as lawful, but now it comes to the category of crime in
some special cases.

The only purpose of tax avoidance is to postpone or shift or eliminate the tax
liability. This can be done investing in government schemes and offers like the
tax credit, tax privileges, deductions, exemptions, etc., which will result in the
reduction in the tax liability without making any offence or breach of law.

Definition of Tax Evasion

An illegal act, made to escape from paying taxes is known as Tax Evasion. Such
illegal practices can be deliberate concealment of income, manipulation in
accounts, disclosure of unreal expenses for deductions, showing personal
expenditure as business expenses, overstatement of tax credit or
exemptions suppression of profits and capital gains, etc. This will result in the
disclosure of income which is not the actual income earned by the entity.

Tax Evasion is a criminal activity for which the assesse is subject to punishment
under the law. It involves acts like:

Deliberate misrepresentation of material facts.

Hiding relevant documents.

Not maintaining complete records of all the transactions.

Making false statements.