| Tax avoidance | Tax evasion |
| Legal way of saving taxes. | Illegal in a financial system |
| Recording of income | Not recording of income. |
| Help in saving, at the same time money can be channelized for economic growth | Help in saving, but since money is not accounted. Money cannot be channelized for economic growth.
|
| Positive extrenalities | Negative
|
| Tools: Health scheme, donation, insurance, | Tools : black money, under invoicing , smuggling, hawala |
Different methods of Tax evasion are as follows:
- Failure to pay the due: not paying taxes on time.
- Smuggling
- Filing false income tax and wealth tax returns
- Maintaining wrong financial statements, showing forged profit and loss account.
- Using fake documents to claim exemptions and deductions.
- Sending money outside , creating swiss accounts
- Wrong use of Tax treaties like DTAA, round tripping
- Corruption
