Meaning of tax planning, tax avoidance and tax evasion
Tax planning – in the context of service tax, the term tax planning can be defined as an exercise whose prime aim is to reduce the tax liability of the concerned assessee. It is also pertinent to add here that tax planning is perfectly legal and permissible. It is, in fact, the right of assessee to plan his affairs in such a way that results in reduction of his tax liability. The objective of tax planning is to minimize the tax liability, and it is wider in scope.
Every person is entitled so to arrange his affairs as to avoid taxation but the arrangement must be real and genuine and not a sham or make-believe.
Tax avoidance – tax avoidance means taking advantage of the loopholes that exist in the relevant tax law. There is no concealment of information from ‘tax authorities’ in tax avoidance. However, it is worth mentioning that that tax avoidance only offers temporary advantage because once the loopholes are plugged in, it will not be possible thereafter to take their advantage. Sometimes these loopholes by plugged making amendment in provisions and too that retrospectively.
Tax evasion – tax evasion means reduction or minimization of tax liability by illegal means. In different words, it refers to illegal means adopted for avoiding or reducing the tax liability. tax evasion involves non disclosure of true and full information to the tax authorities.