CAF-2 · Chapter 3 · Question 4 of 15
Mr. A earned a turnover of Rs. 10 million, kept it as cash in his bank locker, and completely hid it from the tax authorities. Mr. C earned Rs. 10 million but legally utilized deductions to reduce his net taxable income to Rs. 3 million. Which of the following accurately describes their actions?
Test yourself: pick an answer
Reveal answer & explanation
Correct answer: B) B) Mr. A committed tax evasion, while Mr. C practiced tax avoidance.
Explanation
Hiding income from tax authorities is a blatant fraud and constitutes tax evasion, whereas utilizing legally permissible deductions to reduce taxable income constitutes tax avoidance.
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