Tax evasion is avoiding tax liability by an individual or an organisation. It involves serious criminal charges and penalties against the offender. Tax evasion can be done by various methods like not reporting cash transactions, hiding income, not paying taxes to the government before or after the due date, submitting financial statements or filing tax returns with incorrect information, filing documents that are fabricated just to claim exemption, bribing government officials to evade tax, etc.
When practised by an individual or an organisation with a motive to avoid tax liability, these methods become tax evasion.
There are many reasons why tax evasion is practised, and it includes higher rate of taxes, complex laws related to taxes, complex procedures for the filing of taxes as the people find it difficult to move from one department to another, frequent changes in tax policies, lack of implementation of penalty provisions, and corrupt government administration.
If an individual or an organisation is unable to file income tax returns on or before the due date, then under section 139 of the Income Tax Act, 1961, the assessing officer is authorised to impose a penalty of Rs. 5000 or more.
As per section 271(C) of the Income Tax Act, 1961, if any person is hiding or misreporting their income, a penalty will be imposed from 10% to 200% of the amount of tax that was required to be paid but was not paid.
There are many other penalty provisions given under the Income Tax Act, proper implementation of which can result in the reduction of tax evasion.
The government can also take measures such as reducing tax rates, simplifying tax-related procedures, stringent penalty provisions, tax exemption reliefs, etc., to reduce tax evasion.
Read Next:
1. 7 Kinds of Defaults and Their Penalties Under Tax Law in India
2. Powers of Income Tax Authorities in India
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