Distinguish and differentiate between: (a) Tax Planning and Tax Avoidance

Sr. No. Tax Planning Tax Avoidance 1. Tax planning is an act within the four corners of the tax laws. It is a mean to avail the benefits legally permissible under the Act. It complies with the legal language of the law but not the spirit of the law. 2. Tax planning is a permissible legal right which enables the tax payer to maximize his return net of taxes. It refers to reducing the tax liability by finding out loopholes in the law. 3. Tax planning has judicial approval. The concept can be considered heinous to tax evasion. Government brings amendments to curb such practices and to plug the loop holes. 4. It does not result in levy of penalty and prosecution as it is within the language and spirit of law. It may result in disregarding the transaction done to avoid tax and may / may not result in penalties and prosecution against the person engaged in it. 5. An Individual made investment in PPF to claim deduction under section 80C is an example of tax planning. An assets transferred by one person to another person without consideration / without adequate consideration may be treated an example of Tax Avoidance.