Difference between Tax avoidance vs tax evasion vs tax planning

 Tax avoidance vs tax evasion vs tax planning 

Purpose: All serve for tax saving, but tax avoidance aims at minimizing tax, while tax evasion is deemed a form of not paying tax. Tax planning, on the other hand, helps businesses to ensure tax efficiency.

Legality: Both tax planning and tax avoidance are legal. As considered as frauds, tax evasion is an illegal method to reduce tax.

Nature: Tax avoidance is performed by availing loopholes in the law, but complying with law provisions. By contrast, tax evasion is performed by employing illegitimate means for nonpayment of tax. Tax planning uses existing law provisions to relieve the burden of tax liability.

Exercised: Tax avoidance is characterized as tax planning, but it is done before tax liability takes place. This method generally emerges in short-term benefits. Like tax avoidance, tax planning also should be done before tax liability arises, but it associates with the future and often serves for either long-term or short-term benefits of every assessee. Oppositely, tax evasion is typically done after the tax liability has arisen.

Consequences: Tax avoidance is subject to penalty or imprisonment if it violates the tax regulations. Tax planning is totally legal, meanwhile tax evasion must be subject to penalty and other kinds of punishment.