Tax avoidance is the legal utilization of the tax regime to one’s own advantage, to reduce the amount of tax that is payable by means that are within the law. By contrast, tax evasion is the general term for efforts to not pay taxes by illegal means. The use of legal methods to modify an individual’s financial situation in order to lower the amount of income tax owed. This is generally accomplished by claiming the permissible deductions and credits. This practice differs from tax evasion, which is illegal.The term tax mitigation is a synonym for tax avoidance. Its original use was by tax advisors as an alternative to the pejorative term tax avoidance. Latterly the term has also been used in the tax regulations of some jurisdictions to distinguish tax avoidance foreseen by the legislators from tax avoidance which exploits loopholes in the law.
Tax Avoidance means the tax regime’s legal use for one’s own personal advantage so as to lessen the tax amount that is payable to the government by ways that are legal. The Avoidance of Tax is usually done by the people who desire to keep their money with themselves and not give it to the government. Most taxpayers use some forms of tax avoidance. For example, individuals who contribute to employer-sponsored retirement plans with pre-tax funds are engaging in tax avoidance because the amount of taxes paid on the funds when they are withdrawn is usually less than the amount that the individual would owe today. Furthermore, retirement plans allow taxpayers to defer paying taxes until a much later date, which allows their savings to grow at a faster rate.
Avoidance Tax includes situations when people eliminate or reduce tax by following a transaction or many transactions that are legal. The income tax department provides many provisions through which the people can go for Tax Avoidance such as refunds, credits, benefits, and many other kinds of entitlements. The various methods of Tax Avoidance are:
* Legal entities
* Country of residence
* Double taxation