Reducing or negating the tax liability in legally permissible ways and had legal sanction is called as .................... .

The correct answer is - Tax Avoidance

Key Points

• Tax Avoidance
  • Refers to the practice of reducing or negating tax liability using methods that are within the boundaries of the law.
  • It involves utilizing provisions and loopholes in the tax laws to minimize tax payments while adhering to legal requirements.
  • Unlike tax evasion, tax avoidance has legal sanction and does not involve illegal activities.
  • Common examples include claiming deductions, exemptions, and utilizing tax-friendly investment options.
  • Governments often introduce such provisions to encourage savings, investments, or specific economic activities.

Additional Information

• Tax Planning
  • Involves arranging finances and investments to reduce tax liability while complying with tax laws.
  • It is a broader concept that includes tax avoidance as one of its strategies.
  • Examples include investing in tax-saving instruments like Public Provident Fund (PPF) or National Savings Certificate (NSC).
• Tax Deduction
  • Refers to specific amounts that can be subtracted from an individual's gross income to arrive at taxable income.
  • Examples include deductions under Section 80C for investments and Section 80D for health insurance premiums.
• Tax Concession
  • Represents benefits or relief provided by the government to encourage specific activities like education, housing, or charitable contributions.
  • Examples include concessions for senior citizens or exemptions for agricultural income.
• Tax Evasion
  • Involves deliberately avoiding tax payments through illegal means such as underreporting income or inflating expenses.
  • Tax evasion is a punishable offense as it violates tax laws.