Tax Evasion vs Tax Avoidance

Difference Between Tax Evasion and Tax Avoidance

Tax Evasion refers to the adoption of illegal methods for reducing liability of payment of taxes such as manipulation of business accounts, understating of incomes or overstating of expenses etc., whereas, Tax Avoidance is the legal way to reduce the tax liability by following the methods that are allowed in the income tax laws of the country such as taking permissible deductions etc.

When one consults a tax attorney and seeks legal advice to avoid an assessee tax is what we call tax avoidance, whereas one using illegal methods to avoid taxes can be termed as tax evasion. So, you can see both Evasion and Tax AvoidanceTax AvoidanceTax avoidance is the process of reducing the income tax liability of an individual or firm by adopting the lawful methods. The taxpayers can claim exemptions and deductions as allowed under the nation's tax provisions. Such as investments in municipal bonds and deductions for business loss.read more serve the purpose of reducing the taxes.

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In this article, we provide you with the detailed difference between tax evasion vs. tax avoidance.

Tax Evasion vs. Tax Avoidance Infographics

Here we provide you with the top 4 difference Tax Evasion vs. Tax Avoidance.

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Key Differences

The key differences are as follows –

Tax Evasion vs. Avoidance Comparative Table

BasisTax EvasionTax Avoidance
Basic DefinitionIt can be termed as a crime in which a business entity or individual intentionally hides or underpays their particular amount of income to save a massive amount of taxes.Tax Avoidance in a legal manner is the way of reducing the assessee taxes through the medium, which is provided by the local government.
Ways to conductIt is undertaken by using unfair means.It is undertaken by taking advantage of the loopholes in the local laws.
RepercussionsAs it is performed through an illegal way of paying taxes, and therefore the defaulter may be liable for punishment.It is not performed through wrongful intention but only after studying and by complying through the provision of law.
ExamplesHiding your true income by understating the same.
Overstating expenses in your return.
Using offshore accounts to hide interest income;
Keeping transactions unrecorded.
Using a legal way of avoiding tax like by investing in certain schemes as provided by local laws; E.g., Opening Public Provident Fund (PPF) account and investing in the same regularly to reduce taxes.
Creating other legal entities and splitting revenueRevenueRevenue is the amount of money that a business can earn in its normal course of business by selling its goods and services. In the case of the federal government, it refers to the total amount of income generated from taxes, which remains unfiltered from any deductions.read more between them to be eligible for tax slab benefits.

Conclusion

So, every individual has their ethics and way of conducting and acting to circumstances. Choosing the right way matters the most.

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