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CS Professional · Goods and Services Tax (GST) and Corporate Tax Planning · Tax Planning and Nature of Business

Mehta Textiles Ltd. inflates its purchases with bills from non-existent suppliers to reduce profit and pays lower tax. How is this conduct classified?

This is tax evasion. Booking purchases from non-existent suppliers falsifies accounts to understate profit and illegally reduce tax. Tax planning and avoidance involve genuine transactions and the use of legal provisions, whereas here the expenses are fictitious and the intent is to deceive the tax authorities.

  1. ATax planning, since it reduces the tax liability
  2. BTax management, since records are maintained
  3. CTax evasion, since it involves falsification to illegally reduce taxCorrect
  4. DTax avoidance, since it uses a genuine statutory exemption

Explanation

Bogus purchase bills are a falsification of accounts to understate profit. This is deliberate illegal reduction of tax, hence evasion. Planning and avoidance involve genuine transactions or lawful provisions, which are absent here.

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