Common Methods of Tax Evasion

Individuals or businesses resort to various ways to evade tax payments. Some of the commonly used methods of tax evasion are as follows:

1. Misreporting in the Income Tax Returns:

As per the applicable laws in India, filing an income tax return is mandatory. To avoid paying the exact income tax amounts, some individuals and business entities report false information in their income tax returns by providing false data relating to income, investments, and other deductions.

2. Concealing Income:

At times, some individuals avoid showing a source of income by hiding cash transactions. For example, a landlord might accept rent in cash instead of any online mode of payment. This is done when the landlord has not informed the appropriate authorities that the property has been rented out and he is receiving any kind of income against it.

3. Storing Funds in Accounts Outside India:

This is a very common method of tax evasion since information about offshore accounts or accounts in international banks is not disclosed to the Indian government.

4. Falsification of Financial Statements:

The amount of taxes that are to be paid by a company or an individual is determined by the figures shown in the financial statements. By providing false information on balance sheets and profit and loss statements to show a lesser income, tax evasion can be done. This will lessen the amount of tax that is payable.

5. Not Paying Taxes:

The simplest way to avoid the payment of taxes is not to pay the amount and the dues will not be paid to the government. This is one of the most common and known methods of tax evasion.

6. Fake Documentation for Exemption:

The government has provided certain exemptions to the underprivileged section of society to provide them with more financial freedom. As a result of this, some citizens create false documents to show they are underprivileged to claim the benefits despite not actually belonging to that section.

7. Bribery:

Another method is bribing the tax official to either change the tax liability or to make it disappear altogether. Corruption within the government system is one of the subtle reasons for tax evasion. Some tax evaders use this method to make their income disappear and hence, prevent being taxed upon.

Tax Evasion is an illegal activity where an individual or a company avoids paying the tax liability. Tax plays an important role in the growth of a nation, funding essential services, and driving social development. Yet, in the complex financial world, many people follow the wrong path to reduce their tax liability. India faces loss in big amounts in taxes every year due to private tax evasion. Penalties are high for such acts, and hence practising tax evasion must be avoided. Understanding the concept of tax evasion is crucial since individuals and businesses navigate the intricate web of financial responsibilities.

Geeky Takeaways:

• Tax Evasion refers to either illegal non-payment or underpayment of actual tax liabilities due.
• It can be determined by the Internal Revenue Service (IRS) regardless of the fact whether tax forms were filed with the agency or not.
• To determine tax evasion, the agency must be able to prove that the avoidance of tax was willful on the part of the taxpayer.
• It also includes fabricating income, claiming deductions without proof, failing to declare cash transactions, etc.
• The penalties are high for not disclosing income.