DMPQ: What is the difference between Tax evasion and Tax avoidance? What are the methods of Tax evasion?

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Tax avoidance Tax evasion
Legal way of saving taxes. Illegal in a financial system
Recording of income Not recording of income.
Help in saving, at the same time money can be channelized for economic growth Help in saving, but since money is not accounted. Money cannot be channelized for economic growth.


Positive extrenalities Negative


Tools: Health scheme, donation, insurance, Tools : black money, under invoicing , smuggling, hawala


Different methods of Tax evasion are as follows:

  1. Failure to pay the due: not paying taxes on time.
  2. Smuggling
  3. Filing false income tax and wealth tax returns
  4. Maintaining wrong financial statements, showing forged profit and loss account.
  5. Using fake documents to claim exemptions and deductions.
  6. Sending money outside , creating swiss accounts
  7. Wrong use of Tax treaties like DTAA, round tripping
  8. Corruption



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