Tax Planning, Tax Evasion, Tax Avoidance & Tax Management for CA, M.Com,MBA

What is meant by tax management? Describe the elements to be covered under it.

A tax is a mandatory financial charge or some other type of levy imposed upon a taxpayer by a governmental organization in order to fund various public expenditures. The taxation system is vital for the economy of a country o run the government and manage the affairs of a state, money is required.

Tax management

Tax management refers to the management of finances, for the purpose of paying taxes. Tax Management deals with filing Returns in time, getting the accounts audited, deducting tax at source etc. Tax Management helps in avoiding payment of interest, penalty, prosecution.

Elements of tax management are :

1) Filing return.

2) Auditing.

3) Source deduction.

All about different terms under Income Tax Act, 1961 Tax Planning, Tax Evasion, Tax Avoidance & Tax Management

Very Simple analysis of different terms under Income Tax Act, 1961 Tax Planning, Tax Evasion, Tax Avoidance & Tax Management is as under:-

1) Tax Planning

• Tax Planning means reducing tax liability by taking advantage of the legitimate concessions and exemptions provided in the tax law.
• It involves the process of arranging business operations in such a way that reduces tax liability.

Example:-1. Investments Under Section 80C i.e. payment related deductions ,

2. Under Section 80CCDi.e. contribution to Pension Fund of LIC or other insurance company

3. Reinvestment Under Section 54, 54EC etc.

2) Tax Evasion 

Tax Evasion  is using illegal means to avoid paying taxes.

• Usually, tax evasion involves hiding or misrepresenting income.
• This might be underreporting income, inflating deductions without proof, hiding or not reporting cash transactions, or hiding money in offshore accounts.
• Tax evasion is part of an overall definition of tax fraud, which is illegal intentional non-payment of taxes. Fraud can be defined as “an act of deceiving or misrepresenting,”
• It is not legally permissible under taxing statue.

Example:-

1. Bogus Expense

2. Underreporting of Income

3. Inflating deductions without proof

4. Hiding or not reporting cash transactions, or hiding money in offshore accounts etc.

3) Tax Avoidance

• Tax avoidance means taking undue advantage of the loopholes, lacunae or drafting mistake for reducing tax liability and thus avoiding payment of tax which is lawfully payable.
• Generally, it is done by twisting or interpreting the provision of law and avoiding payment of tax.
• Tax avoidance is an activity of taking unfair advantage of the shortcomings in the tax rules by finding new ways to avoid the payment of taxes that are within the limits of the law.
• Tax avoidance can be done by adjusting the accounts in such a manner that there will be no violation of tax rules.
• Tax avoidance is lawful but in some cases it could come in the category of crime.

Example:-

1. Taking legitimate tax deductions to minimize business expenses and lower your business tax bill.

2. Taking tax credits for spending money for legitimate purposes etc.

4) Tax Management

• It means planning affairs in such a manner, so that the tax obligation is managed properly.
• The objective of Tax Management is to comply with the provisions of Income Tax Law and its allied rules.
• Tax Management helps in avoiding  payment of interest, penalty, prosecution etc.

Example:-

1. Tax Management deals with filing of Return in time.

2. Getting the accounts audited.

3. Deducting tax at source etc.