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

Which of the following best describes tax evasion, as distinguished from tax planning and tax avoidance, in the study of corporate tax planning?

Tax evasion means illegally reducing tax by concealing income, suppressing facts or furnishing false particulars. Tax planning works within the letter and spirit of law, and avoidance exploits loopholes against legislative intent, but only evasion involves unlawful concealment or falsification and attracts penalty and prosecution.

  1. AArranging affairs within the letter and spirit of law to use deductions and exemptions the law offers
  2. BConcealing income or furnishing false particulars to reduce tax liability illegallyCorrect
  3. CUsing a loophole in the law that is technically legal but defeats the legislative intent
  4. DChoosing a lower-taxed location for a new unit in a notified backward area

Explanation

Tax evasion is an illegal act involving concealment of income, suppression of facts or false claims. Option A describes tax planning, option C describes tax avoidance, and option D is a legitimate locational planning decision.

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