Common methods of Tax Evasion in India

There are two insights of not paying taxes when they are due.
The first is tax avoidance and the other tax evasion.
The difference between the two is that tax avoidance is basically finding a loophole that exempts you from paying taxes and is not strictly illegal, while evasion is not paying the taxes when they are actually due, which is absolutely illegal.

These are some of the ways in which people may avoid/evade taxes.

  • Failing to pay the due:This is the simplest way in which someone may evade taxes. They simply won’t pay it to the government, not even when the dues are called for. A person engaged in this sort of tax evasion won’t, willingly or unwillingly, pay the tax before or after the due date.
  • Smuggling:When certain goods move from one location to another, across international or state borders, a tax or charge may be payable in order to move the goods. However, some individuals may move these goods in surreptitious ways in order to avoid paying those taxes that evading the tax altogether.
  • Submitting false tax returns:In some cases, when an individual files taxes, they may submit false or incorrect information in order to either lessen the tax that they are supposed to pay or not pay it at all. This is also tax evasion since the complete information is not provided and they may actually be paying less than what they should.
  • Incorrect financial statements:The taxes that are payable by an individual or an organisation may be decided on the financial dealing that have taken place during the assessment year. If false financial documents or accounts books are submitted, ones that show incomes less than what was actually earned, the tax may come down.
  • Using fake documents to claim benefits:The government may have provided certain exemptions and privileges to certain strata or members of society in order to ensure they have a bit more financial freedom to progress. In some cases, members who actually don’t qualify for such privileges will get documents created to support their claim of being a part of that group thus claiming exemptions where they are not suited.
  • Not reporting income:It could be said that this is one of the most common methods of tax evasion. In this case, individual just won’t report any income that they receive during a financial year. Not having reported any income, they don’t pay any tax thus successfully evading tax all together. The simplest example of this would be a landlord who has kept tenants but has not informed the authorities that he has rented the house and is actually receiving an income from it.
  • Bribery:There may be a situation where there a certain amount due in taxes which the individual may not be willing to pay. In such a case he or she may actually offer a bribe to officials to not make them pay the tax and to make it ‘disappear’.
  • Storing wealth outside the country:We have all heard tales of Swiss bank accounts. Offshore accounts are accounts maintained outside the country and information about the dealing in these accounts is not disclosed to the income tax department thereby evading any and all taxes due on that wealth.This is one of the most common ways regarding tax evasion in the country.

 

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