5.2. TAX AVOIDANCE
It is an act of dodging tax without breaking the Law. It means when a taxpayer arranges his financial activities in such a manner that although it is within the four corner of tax law but takes advantages of loopholes which exists in the Tax Law for reduction of tax a liability. In other words though he has complied the letter of law but not the sprit behind the law.
Following transactions are held as Tax Avoidance which are :
Where tax law is complied with by using colorable devices which means that use o dubious method or a method which is unfair for reduction of tax liability.
Where the fact of the case is presented in a false manner.
Where the sprit behind the law is avoided.
There is a malafide intention.
It means that method adopted for reducing tax liability should be within the framework of law. If it is not within the framework of law, it amounts to tax avoidance and not Tax planning.