Difference Between Tax Evasion, Tax Planning & Tax Avoidance
Basis |
Tax Evasion |
Tax Planning |
Tax Avoidance |
---|---|---|---|
Meaning |
Illegal practice of evading taxes intentionally | Financial planning to reduce the tax liability. | Legal practice of reducing tax burden by exploiting legal loopholes or incentives. |
Legality |
Illegal | Legal | Legal |
Intention |
Intentional violation of tax laws | Compliance with tax laws while minimizing tax liability | Compliance with tax laws while reducing tax burden |
Methods |
Understating of income, dealing in cash, transaction laundering, etc. | Strategic financial decisions, deductions, credits, etc. | Using tax laws, credits, incentives, and legal loopholes to reduce tax burden |
Outcome |
Civil and criminal penalties and fines | No legal consequences | No legal consequences |
Ethical Considerations |
Unethical practice | Ethical and lawful | Matter of debate |