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

Which statement best distinguishes tax planning from tax evasion in the context of a company restructuring its business?

Tax planning legitimately uses options available under the law to reduce tax liability, whereas tax evasion reduces tax through illegal means such as concealment of income or false records. The distinction rests on legality and not on the amount of tax saved or the timing of filing.

  1. ATax planning uses the legitimate options the law provides, while tax evasion involves illegal means such as concealing income or falsifying recordsCorrect
  2. BTax planning is always carried out after the due date of filing returns, while tax evasion is done before it
  3. CTax planning is possible only for individuals, while tax evasion is possible only for companies
  4. DTax planning and tax evasion differ only in the amount of tax saved, not in legality

Explanation

Tax planning works within the letter and spirit of law by using deductions, exemptions and structural choices. Tax evasion relies on illegal methods like suppressing receipts or fabricating expenses. The difference lies in legality, not in the quantum saved, so the option based on the amount is wrong.

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