One of the most important things which is really painful to all persons is payment of tax. So They always try “How to reduce Income tax”. So, there are 4 types of methods through which taxpayers/persons can reduce their tax liability. That are

•     Tax Avoidance
•     Tax Evasion
•     Tax Management
•     Tax Planning

How to reduce Income Tax

It is a systematic arrangement of financial affairs to minimize tax liability within the law. It is purely legal which is approved by the income tax department to allow eligible taxpayers or persons to claim certain adjustment and deduction to income. Here the individual, persons, entity, firm, organization, etc. used tax avoidance methods to minimize their tax liability which is considered to be legal.

Tax evasion is a method of directly avoided taxes which is illegal. In this method the taxpayer tries to reduce his tax liability by suppressing or minimizing income and increasing & inflating expenditures. For ex: if an individual received payment in cash and doesn’t declare that income to the government for taxation purposes. Tax evasion is not only a crime, illegal activities but also an anti-national practice. By doing this practice a person can be penalized and go to jail.

   Omitting of income(आमदनी का जरिया)

   Making false entry in the books of account(खाते की किताबों में गलत प्रविष्टि करना)

   False donation receipt(झूठी दान रसीद)

   Hiding of income(आय का छिपाना)

   Claiming of personal expenses as business expenses(व्यवसाय व्यय के रूप में व्यक्तिगत खर्चों का दावा)

Every person who is eligible under tax purpose must be liable to pay tax. Tax management is nothing but management of finance for payment of tax in time. If the assessee makes payment of tax in time then his/her interest or penalty in taxes will be minimized or will not be paid.

(प्रत्येक व्यक्ति जो कर उद्देश्य के तहत योग्य है उसे कर का भुगतान करने के लिए उत्तरदायी होना चाहिए। कर प्रबंधन कुछ भी नहीं है, लेकिन समय में कर के भुगतान के लिए वित्त का प्रबंधन है। यदि निर्धारिती समय में कर का भुगतान करता है तो करों में उसका ब्याज या जुर्माना कम से कम होगा या भुगतान नहीं किया जाएगा।)

Tax planning is an arrangement of financial activities in such a way that the taxpayer can avail maximum tax benefit. The assessee can get full advantage of all eligible tax exemptions, rebates, deduction. Concessions & all allowances permitted under the income tax act 1961. For example the assessee can be done tax planning by investing his/her money in SEZ unit and can also donation to charity & NGO through which an assessee can eligible for deduction u/s 80G.

From the above discussion it can be concluded that  the assessee can reduce their income tax by Tax Avoidance, Tax Evasion, Tax Management, & Tax Planning etc. whereas tax evasion is an illegal activity according to the income tax laws.