“Tax Evasion” for Income Tax Purpose

It is also important to understand the meaning of tax evasion in the correct perspective. Whenever a person either under-reports or does not report any income with the intention of reducing his tax liability, it can be said to be a case of tax evasion. He may be filing his return in which all the financial activities are not disclosed or he may choose not to file his return at all. All such income which has been concealed and consequently has not borne the due tax liability, is tax evaded income. It may be in the form of cash or it may have been invested in immovable property or movable assets like jewellery, bullion, etc.

Such money may even be found invested in shares, bonds, mutual funds, etc. or it may have been spent in maintain ing an opulent lifestyle. It may be invested in business in the form of stock in trade or bogus sundry creditors, etc. The most popular and convenient form of investment of such money is in real estate. Farm houses, land, buildings, etc. are found to absorb large amounts of such funds.


It is also not unusual for the tax evaders to park their black money in bank accounts. Such accounts could be in Indian banks or in Swiss banks or other tax havens. The accounts could be in the name of the investor or in benami names. Prior to the enforcement of the KYC (Know Your Customer) norms, people are known to have opened bank accounts in the names of their employees, servants or even their pet dogs.


On the other hand, if financial activities and transactions are all disclosed but either provisions of law are interpreted in such a manner or facilities in the statute are used in such a way that tax liability is considerably reduced, then it is called tax avoidance. Tax avoidance is the legal utilization of the tax regime to one’s advantage to reduce the amount of tax that is payable. By contrast, tax evasion is the term used for not paying taxes that are due. For example, in the case of a hotel, if depreciation is claimed in respect of a water treatment plant which has not been installed at all, it would be a case of tax evasion. However, if the hotel labels its building as “plant” for claiming higher rate of depreciation on it, it would be a case of tax avoidance.


There is a provision in the IncomeTax Act by virtue of which a person is entitled to exemption from tax on profits derived from a manufacturing or production unit set up in India’s North-Eastern states and the states of Sikkim, Himachal Pradesh and Uttaranchal. It was noticed that a lot of assessees claimed that they had established their undertakings in these states. However, enquiries in certain places like Baddi in Himachal Pradesh revealed that these assessees had acquired small premises just to show that they had set up a manufacturing unit but, in fact, either no manufacturing activity or minimal manufacturing was carried out from these premises. The actual manufacturing was being carried out at some other place. But the assessee claimed the tax benefit for the entire production. This is a clear-cut case of tax evasion. On the other hand, if an assessee who already has an industrial unit in some other place, say like Faridabad, creates a new entity and starts manufacturing from Baddi through this entity to take benefit of the provision, it could be a case of tax avoidance. Splitting up of profits by creating new entities like trusts, HUFs, etc. could be termed as tax avoidance.


Someone else has explained the difference between tax avoidance and tax evasion as “the jail walls”. In other words, tax evasion may lead the offender to jail but this is not so for tax avoidance.


Tax evaded income or black income is often spent lavishly for supporting luxurious lifestyles. It is splurged on marriages and other social functions. During elections, it comes out of the coffers and is illegally spent for campaigning. It is conveniently spent for payment of bribes,  for “on money” payments, under the table payments for securing admissions, etc. In this way, it is pumped back into the system and becomes an integral part of the economy. Black money, in fact, is not idle money; it is very much in the productive channel. That is why it is also termed as “parallel economy”. Paradoxically, during the 2008 economic recession, India was believed to not have been as impacted as the West because of the country’s black economy. Although the black economy is not counted for statistical purposes, it is very much a part and parcel of the economic system of the country.
 
 
 
 
 
GST (India)
F.A.Q. on GST
GST Forms Download
GST Compensation Law
GST Enrollment Process
GST Law & Act.
GST Rules
GST Schedule ( I to V )
IGST Law & Act.
GST A Practical Knowledgebase
Filing GST Return
Enroll & Registration with GST
GST Office Tool to File GST Return
LIBRARY @ Tax Management
TAX & INVESTMENT GUIDE FOR "NRI"- Non-Resident Indians !
GUIDE & FAQ @ TAX
GRAPHICAL PRESENTATION @ TAX
TIPS & TRICKS @ TAX
MANAGERIAL & FINANCIAL DECISIONS @ TAX
5 GOLDEN RULES OF TAX PLANNING
FAMILY TAX PLANNING
DEDUCTIONS FROM YOUR INCOME
EXEMPTED INCOMES
HUF - FORMATION, MANAGEMENT & TAX PLANNING
COMPUTATION OF GROSS TOAL INCOME
INCOME TAX @ GLANCE
MULTIPLE KNOWLEDGEBASE ON TAX
51 TIPS ON TAX PLANNING
APPEALS UNDER INCOME TAX
ASSESSMENTS
PENALTIES UNDER IT DEPATMENTS
TAX SAVING SCHEMES
TAX READY RECKONER
TAX RATES
PROSECUTIONS UNDER INCOME TAX DEPARTMENT
TAXATION SYSTEM IN INDIA
CHARITABLE & RELIGIOUS TRUST - TAXATION
PRESCRIBED FORMS WITH with Section / Rules
 
TAX @ KNOWLEDGE BASE !

Most Popular Links :

Clubing of Income Deduction U/s 80C
Allowances Us-17(3) Exemption-Salary
Tax Amendment-2015 Taxable Income
Clubing of Income Tax Deductions
HUF Deduction HUF Investment
Gift by HUF HUF Tax Planning Tips
Tax Saving Schemes Tax Planning Tips
Refund of Tax Fringe Benefit Tax-FBT
Return Filing Assessment / Scrutiny
Notice from I.T. Dept. Incomes Types @ TDS
Exemptions-Tax Returns “Summon” U/s 131
'Black Money' @ I.Tax Big Gifts To Be Taxed
'Appeals' under I.Tax Assessment @ I.Tax
Exempted Incomes Capital Gain
Business & Professions House Property
Salaries @ I.Tax Partnership Firm
'Penalty' under I.Tax Act. Tax Ready Reckoner
Charitable Trust Useful Links @ I.Tax
 
Guide & FAQ on Tax Knowledgebase @ Taxation Income Tax @ Glance HUF - Formation, Planning & Taxation
Charitable & Religious TRUST NRI (Tax Planning,Saving,Investemnt) Tax Tutorials GST (FAQ, Law, Act. Rules, Schedule, Enrollment)
FAQs - Income Tax India    

Disclaimer:
All efforts are made to keep the content of this site correct and up-to-date. But, this site does not make any claim regarding the information provided on its pages as correct and up-to-date. The contents of this site cannot be treated or interpreted as a statement of law. In case, any loss or damage is caused to any person due to his/her treating or interpreting the contents of this site or any part thereof as correct, complete and up-to-date statement of law out of ignorance or otherwise, this site will not be liable in any manner whatsoever for such loss or damage.

The visitors may click here to visit the web site of Income Tax Department for resolving their doubts or for clarifications

Tally.ERP9 Book Online Order Tally.ERP9 Book Content