Tax Avoidance or Tax Planning or Tax Evasion or Tax Management – Understanding the terminologies!

Tax avoidance is one of the most common methods used by taxpayers, as they attempt to exploit loopholes in the tax law, which may exist in the form of a lack of proper jurisdiction to hear cases, a lack of proper stringent and vigil mechanisms for its implementation, or liberal penal provisions, or any other such loopholes, and this is noticed by taxpayers, and they tried to utilise such gaps, and therefore use legitimate mechanisms to reduce their own tax liability required to be paid.

For e.g: Using tax deductions to reduce business expenses and the resulting tax bill/ Protecting revenue from tax liability by establishing a proper employee retirement plan/ When a person transfers income from an asset without actually transferring the asset, the income is included in the transferor’s income.

As a result, while it is legal, it is also illegal, which is why it is also known as loopholes tax planning.

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Tax planning is the most commonly used method by taxpayers, in which individuals or businesses attempt to maximise the benefit of legal provisions in the form of deductions, exemptions, or any other mechanism found in the Income Tax Act of 1961, in order to reduce their respective tax liability, and this method of lowering tax liability is 100% safe.

Using various deductions authorised under Section 80 of the 1961 Act/ Investing in Special Economic Zones/ Investing in fixed deposits, mutual funds, provident funds, or any other funds where a tax exemption or rebate is provided or supplied either spontaneously or over time.

tax avoidance

Tax avoidance is defined as a totally criminal or illegal way of avoiding one’s tax duty in which all taxpayers, whether individuals, businesses, or corporations, have the primary goal of displaying less profit through different criminal tactics in order to reduce their tax responsibility, or they may also show higher expenditure in order to qualify for specific exemptions and so on

For example, showing false and fabricated books of accounts and financial statements/ inflation deductions without sufficient evidence/ claiming more and more expenditure/ illegally transferring assets/ hiding legal documents showing real income earned or generated and then claiming exemptions by showing less income/ transferring black money to foreign bank accounts such as Swiss accounts

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Tax management is essentially finance management for the express purpose of paying tax, and is thus a considerably broader word than tax planning, as the former’s main goal is to comply with the relevant income tax laws and other allied standards.

For example, avoiding prosecution or penalties by filing an income tax return on time, etc.

Are you aware of these Top 5 EPFO Provident Fund account benefits?

Employees’ Provident Fund Organisation (EPFO) offers a variety of benefits to its members. Free insurance and pension coverage are among the Provident Fund’s perks. In general, an employee’s Provident Fund (PF) account is viewed as a retirement-oriented investment option, and it is required of any employee who meets the Rs 15000 monthly PF contribution threshold. Section 80C of the Income Tax Act exempts an employee’s PF contribution up to Rs 1.5 lakh in a single financial year from income tax.

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Employees should be informed of the following five primary points:-

1. Free insurance:

Under the EDLI, a Provident Fund Account holder is automatically liable for free insurance up to Rs 7 lakh in the event of death while serving (Employees Deposit Linked Insurance Scheme). The death cover for PF account holders was previously Rs 6 lakh, but it has now been increased to Rs 7 lakh. Most notably, the PF account holder would not have to pay any insurance premiums for the EDLI death cover.

2. Pension provision:

After 58 years, a PF account holder is still liable for a pension. To be eligible for a pension, however, a minimum of 15 years of daily monthly PF contributions must be made in one’s PF account. The pension gain comes from the employer’s contribution, which goes to the EPS account of the PF account holder for 8.33 percent of its contribution (out of a total of 12 percent).

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3. Loan against PF:

In the event of a financial emergency, a PF account holder may borrow against his or her PF balance, with an interest rate of only 1%. The loan will be for a limited time and must be repaid within 36 months of the date of disbursement.

4.Emergency partial withdrawal:

EPFO provides for partial withdrawal in the event of a medical or financial emergency, subject to certain terms and conditions.

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5. Home loan and hole loan repayment:

An individual’s PF account may be used to repay a home loan. According to EPFO law, they can withdraw up to 90% of their PF balance for the purchase or construction of a house. They can also use their PF balance to purchase properties.

Payment of Tax under QRMP Scheme, for the month of March 2021

1. All taxpayers having aggregate turnover up to Rs 5 crores, under QRMP Scheme (w.e.f. 01.01.2021 onwards), are required to furnish return on a quarterly basis, along with payment of tax on a monthly basis.

2. Persons availing QRMP Scheme are required to pay the tax due, in each of the three months of the quarter, by depositing the due amount as discussed below.

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3. Payment of Tax for first two months of a quarter (M1 & M2 ie for January and February month for Jan-March Quarter):

  • a. While generating the challan, taxpayers must select “Monthly payment for the quarterly taxpayer” as a reason for generating the challan.
  • b. They can choose either of the following two options to generate the Challan:

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–35% Challan (Fixed Sum Method):
For taxpayers opting for this method, the portal will generate a pre-filled challan in Form GST PMT-06, for an amount equal to 35% of the tax paid in cash, in the preceding quarter, if the return was furnished quarterly or equal to the tax paid in cash in the last month of the immediately preceding quarter if the return was furnished monthly.

–Challan on a self-assessment basis (Self-Assessment Method):

These taxpayers can pay the tax due by considering the tax liability on inward and outward supplies and the input tax credit as available, in FORM GST PMT-06.

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Note: The aforesaid options are not available for payment of tax for the third month (M3) of the quarter to persons availing QRMP Scheme.

  • c. Payment of Tax for the third month of a quarter (M3 ie for March month for Jan-March Quarter): For the third month of the quarter (M3), taxpayers can click the button ‘Create Challan’ in Payment Table 6 of Form GSTR-3B and file GST-PMT-06 Challan, for depositing any amount towards their tax liability.