Tax avoidance means reducing your tax liability by making use of legal provisions under the Income Tax Act. This includes deductions, exemptions, and restructuring financial activities to minimise taxes.
While legal, aggressive tax avoidance is discouraged as it may border on unethical practices. Unlike tax evasion—which is illegal—tax avoidance works within the framework of the law.
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Key takeawayzs
- Tax avoidance involves using lawful strategies to reduce the amount of income tax payable.
- Both individuals and businesses often engage in tax avoidance to lower their tax obligations.
- Common methods include claiming tax deductions, credits, and excluding certain types of income.
- The Internal Revenue Code (IRC) allows for legal tax benefits to promote activities like home ownership and retirement savings.
- Tax evasion, unlike avoidance, involves illegal actions such as concealing income or falsifying records to evade taxes.
Types of Tax Avoidance
1. Standard deduction
Every salaried taxpayer in India is eligible for a standard deduction from taxable income. This reduces the overall tax burden, even without itemising expenses.
2. Retirement savings
Investments in PPF and NPS qualify for deductions under Section 80C and 80CCD(1B). Not only do they reduce current taxable income, but they also promote long-term savings.
Along with retirement savings, you can diversify through Bajaj Finance FDs. With flexible tenures from 12 to 60 months, they help balance both short-term and long-term goals. Check latest FD rates.
3. Workplace expenses
Expenses such as house rent, business travel, or professional fees can reduce taxable income if claimed properly. Employers also provide exemptions like HRA and LTA.
Also Read: What is Advance Tax
