TAX AVOIDANCE

TAX AVOIDANCE

tax avoidance is an act of dodging tax without breaking the law. It means when a taxpayer arranges his financial activities in such manner that although it is within the four corners of tax law but takes advantages of loopholes which exists in the tax law for reduction of tax liability.

Following are the transactions are held for tax planning

1. where tax is compiled with by using colourable devices: it means that use of dubious methods or method which is unfair for reduction of the tax libility.
2. Where the facts of the case is presented in false manner.
3. Where the spirit behind the law is avoided.
4. There is a malafide intention.

“tax planning may be legitimate provide it is within the framework of law. Colourable devices cannot be part of tax planning and it is wrong to encourage or entertain the belief that is honorable to avoid payment of tax by resorting to dubious methods”

VARIOUS METHODS OF TAX PLANNING

1. short-range tax planning: short term tax planning means the planning thought of and executed at the end the income year to reduce income in legal way.
2. Long range tax planning: long term tax planning means a plan out at the beginning of the income year and to be followed around the year.
3. Permissive tax planning: permissive tax planning means making plans which are permissible under different provisions of the law.
4. Purposive tax planning: it means making plans with specific purpose to ensure the availability of maximum benefits to the assesses through correct selection of investments,making suitable programs for replacement of assets....