Tax evasion is a heinous crime that has put many behind bars. It refers to fraudulent filing for tax by using unfair means to reduce tax liability in a given financial year. Section 80C of the Income Tax Act allows and limits various tax exemptions based on investments made in the year to Rs. 1.5 lakh per individual. This exemption is applicable on specified securities including government bonds, FDs, ELSS, NPS, etc. However, when individuals try to evade applicable taxes through unlawful means, it brings them under the IT department’s radar for tax evasion. This article talks about tax evasion and its penalties.
Tax evasion is a malpractice where entities or individuals avoid paying their tax liabilities to the Income Tax department. In India, evading tax could lead to hefty penalties and even imprisonment.
Also known as tax fraud, tax evasion includes practices like concealing or fabricating income and falsifying deductions without proof. Failing or not disclosing cash transactions is another method of evading income tax.
Tax evasion penalties are severe and can cause a huge impact not only in the income of the company or an individual, but also to their public image that may impact future engagements.
In the past, people have tried to make use of every possible loophole in the system to evade tax in various ways. Here are some of the most common ways by which people try to evade tax, ones you should definitely steer clear of:
Tax evasion and tax exemption are two entirely different concepts. While tax evasion is an illegal activity with repercussions, tax exemption is a facility provided by the government that corporates and individuals can avail to legally and lawfully save tax. The difference between the two concepts lie, therein, in the terms – saving tax and hiding income. Below is a table that distinguishes tax evasion and tax exemption:
|Tax Exemptions||Tax Evasion|
|Refers to the concept of income generation, investment or expenditure without getting levied with heavy taxes.||Is an illegal activity that avoids making any payment of taxes by fraudulence.|
|Tax exemptions help in reducing the overall income liable to be paid in the form of tax.||Taxable income remains unaltered, but a part is hidden from authorities unlawfully.|
|Tax exemptions are done by using government provisions such as those under Section 80C of the Income Tax Act.||Tax evasion is a fraudulent activity done by illicit means.|
|Taxpayers can save their money by getting exempted through lawful means.||Taxpayers save their money by employing different illegal methods of hiding, bribing and smuggling among others.|
|No penalties are made if adhered to the correct provisions.||Tax evasion penalties can be severe with the graveness of the crime.|
Tax evasion or income tax evasion is a serious crime and several businessmen and individuals have been penalised and even imprisoned for avoiding payment of taxes. Here are some tax evasion penalties provisioned by The Income Tax Act of 1961, implemented by the Enforcement Directorate:
There is a thin line that differentiates Tax evasion and Tax avoidance. While both are immoral, the difference in both of these terms is determined by the legality of the activities. Here are some ways in which you can understand the basic difference between Tax avoidance and evasion.
|Features||Tax Evasion||Tax Avoidance|
|Nature||Evading tax is illegal and is sought by unfair means.||Tax Avoidance is a method where the income and expense is planned to lawfully reduce tax bearing.|
|Attributes||It is illegal and can be penalised in the eyes of the law.||Tax Avoidance is not penalised but may be considered immoral in some cases.|
|Objectives||Tax fraud is done by reducing the liability of taxes of the taxpayer by using fraudulence.||Tax avoidance is done by looking for loopholes in the law to reduce tax liability.|
|Consequences||If caught, can lead to a penalty or imprisonment, depending on the graveness of the crime.||Tax avoidance usually defers to any tax liability.|
|Motive||Tax evasion is a way to conceal tax liability by illicit means.||Tax avoidance is usually conferred to dodging tax liability within legal ambit.|
Tax evasion is a criminal offence that can lead to severe penalisation of the individual with a lump sum penalty and even imprisonment.
Tax evasion is a serious offence that can cause imprisonment and have several repercussions on business as well as business image that may affect future engagements. Tax evasions should be avoided at any cost and should not be encouraged. You can avoid tax evasions by filing your taxes on time, following lawful practices to maintain records and undertaking timely audits to abide by the rules and regulations prescribed by the government. It is also important that taxpayers should file the right tax returns forms to avoid chances of offence. This could be done with the help of a financial advisor if you need assistance.
Ans: Taxpayers are fully responsible for ensuring that the tax credit statements will be available in TDS/TCS certificates. While companies should submit the TDS to the income tax department in time, the liability falls on the taxpayers to ensure there is no discrepancy. One may claim a refund after first paying up should the employer file late. Section 271C of Income Tax Act lays down the law relating to the penalty on companies imposed by the Income Tax Department for failure to deduct TDS or remit TDS before the applicable due date.
Ans: If a taxpayer fails to file income tax returns by the due date, they may receive intimations for non-filing from the IT Department, after which they may be charged for tax evasion or avoidance as per the Income Tax Act of 1961.
Ans: As per the Income Tax Act of 1961, a taxpayer has to pay a late fee up to Rs. 5,000.
Ans: If a taxpayer conceals their income statement, they will be charged for tax evasion under the Income Tax Act of 1961. The percentage of the penalty or severity of punishment, including duration of imprisonment will be decided depending on the graveness of the crime.
Ans: If the taxpayer is hiding their audit statements or misreporting their income, the income tax officer can raid a location to uncover the discrepancies. The penalty will then be concluded according to the provisions in Section 271AAB in such cases.
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