Difference Between Tax Evasion and Tax Avoidance

5paisa Research Team Date: 29 May, 2023 04:18 PM IST


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The primary difference between tax evasion and tax avoidance is that tax evasion is considered a crime globally, whereas tax avoidance is not. Tax avoidance is the use of legal approaches to avoid paying taxes. Meanwhile, tax evasion is using deceitful and fraudulent methods to evade tax payments. 

While the former is considered completely legal, the latter is a criminal offence. Today, tax evasion and tax avoidance in India have become the two most prevalent practices to reduce tax burdens. Find out more differences here.

What Is Tax Evasion?

Tax evasion is a fraudulent approach to avoid paying the taxes that you are required to. It is an act of deceit when you understate your income or overstate the sum of your expenditures. 

The definition of tax evasion is the intentional manipulation of your income to avoid paying taxes or to have your tax liability reduced. Here are the following actions considered as an attempt to tax evasion: 

●    Falsifying information regarding your revenue or expenses
●    Hiding or concealing related documents and hiding income 
●    Having an excessively high tax credit
●    Claiming personal expenses as commercial/corporate expenses 

In every nation, evading taxes is a criminal offence with legal repercussions.

What is Tax Avoidance?

Tax avoidance is a legal approach used to circumvent the intended purpose of the law by unfairly exploiting loopholes in the tax code. It alludes to developing creative approaches or instruments to evade paying taxes while remaining within the boundaries of the law.

This can be accomplished by modifying the financial records in a way that will not conflict with any tax regulations and will also reduce the tax incurred. Tax avoidance was once considered legal, but it is now classified as criminal behaviour in some specific situations.

Tax avoidance only reduces, delays, or sometimes eradicates the tax burden. This can be accomplished through participating in government programmes and incentives like exemptions, deductions, tax privileges, tax credits and other offers that reduce tax obligations without breaking the law or committing any infractions.

Difference Between Tax Evasion and Tax Avoidance

Here is a table representing the difference between tax evasion and tax avoidance based on aspects like meaning, concepts, attributes, consequences, etc. Check it out. 


Tax Evasion

Tax Avoidance


It is a fraudulent and unlawful approach to reducing or eliminating tax liability

It is the legal strategy used to reduce tax liability without violating any law.

Commonly Used For

Tax concealment

Tax hedging


Unlawful and objectionable, both in terms of morals and script

Immoral attribute, which includes exploiting the loopholes of the law without breaking it.


Intentional account manipulations leading to a fraudulent activity

Making the most out of the loopholes in the tax laws


Use of approaches prohibited and punishable by the law

Use of lawful and justified means

When Does It Happen

After the occurrence of tax liability

Before the tax liability arises


Criminal/punishable offence

Legal and legitimate


Imprisonment or penalty fee

Deferment/evasion of tax liability


Examples of Tax Evasion

Given that you know the difference between tax evasion and tax avoidance, it’s time to look at their examples. Let’s start with the examples of tax evasion: 

●    Failure to report any foreign income falls under the bracket of tax evasion. 
●    Failure to report revenue from cryptocurrency results in tax evasion.
●    Failure to record earnings from all-cash transactions is tax evasion.
●    Often, tax evasion includes fabricating documents or financial records that are false
●    Bribing a tax official to conceal your financial records results in tax evasion.

Examples of Tax Avoidance

When it comes to tax evasion vs tax avoidance, the latter comes with the following examples: 

●    Investment in financial products reduces your tax liability.
●    Making use of deductions for things like student loan interest, health insurance premiums, mortgage interest, etc.
●    Donation to a charity or political party to claim deductions.
●    Seeking services of a financial advisor to invest and file deductions.

Which is the Best Way to Save Taxes?

Knowing and comprehending the difference between tax evasion and tax avoidance may make it clear that using the legal road will allow you to pay less in taxes in the long run. Criminal repercussions for tax evasion may include jail. 

So, given the tax evasion vs tax avoidance examples, finding legitimate techniques to reduce the tax burden is a more practical and smart choice—and better than prison time.


Every taxpayer must pay their taxes as it’s the funding source for the government. If you’re an Indian citizen above 18, you’ll have to pay taxes. Keep paying your taxes as you do while making financial plans with suggestions from your financial advisor. 

Always remember that tax evasion is a punishable offence. When attempting to evade tax lawfully, make sure you don’t cross the line from tax avoidance to evasion.

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