Difference between tax planning,tax avoidance and tax evasion

What is tax planning? What is tax avoidance and tax evasion? Learn the difference between Tax planning,Tax avoidance and Tax evasion in this article.

Difference between Tax planning,Tax avoidance and Tax evasion.

1)DEFINITION-Tax planning:
It is a way to reduce tax liability by taking full advantages
provided by the act through various exemptions,deductions,rebates
and relief.
Tax avoidance:
It is an exercise by which the assessee legally takes advantage of
the loopholes in the Act.
Tax evasion:
It is the illegal way to reduce tax liability by deliberately
suppressing income or sale or by increasing expenses etc.,which
results in reduction of total income of the assessee.

2)OBJECT- Tax planning:
To reduce tax liability by applying script and moral of law.
Tax avoidance:
To reduce the tax liability to the minimum by applying the script
of law only.
Tax evasion:
To reduce tax liability by applying unfair means.

3)BENEFIT- Tax planning:
Generally,arises in long run.
Tax avoidance:
Generally,arises in short run.
Tax evasion:
Generally,benefits do not arise but it causes penalty and

OF LAW- Tax planning:
It uses benefits of the law.
Tax avoidance:
It uses loopholes in the law.
Tax evasion:
It overrules the law.

5)PRACTICE- Tax planning:
It is tax saving.
Tax avoidance:
It is tax hedging.
Tax evasion:
It is tax concealment.

6)NEED- Tax planning:
It is desirable.
Tax avoidance:
It is avoidable.
Tax evasion:
It is objectionable.

7)MORALITY- Tax planning:
It is moral in nature.
Tax avoidance:
It is immoral in nature.


Author: Chitra24 Jul 2014 Member Level: Diamond   Points : 5

Tax Planning is the process of availing deduction under section 10 A of Income Tax Act. It is a legal process.

Tax Avoidance is the process of misinterpreting the provisions of Income Tax Act in order to reduce the amount to be payed as tax. It is illegal to involve in such cases as we being a citizen should pay the right amount of tax to our government.

Tax Evasion is what many people do. It is the method of understating one's income. A person getting Rs. 1 Lakh a year will show his income as only Rs. 50000 a year. This reduces his tax liability but is illegal to do so.

Tax Administration is yet another related topic which the author has not included here. It is the process of making suitable arrangements of Tax Deducted at Source (TDS).

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