What is a tax avoidance scheme?

A tax avoidance scheme refers to a strategy employed by individuals or businesses to reduce their overall tax liabilities through legal means. This can encompass a variety of methods, such as taking advantage of deductions, credits, exemptions, and other provisions in the tax code that are designed to lower taxable income or defer taxes.

Using legal loopholes and planning, taxpayers can manage their financial affairs in a way that minimizes taxes without violating tax laws. This is distinct from tax evasion, which is illegal and involves failing to pay taxes owed or misrepresenting income or deductions to the tax authorities. Unlike compulsory tax payment plans, which require payments regardless of the taxpayer's situation, or systems designed to increase tax liabilities, tax avoidance seeks to use available legal options to preserve more of one’s assets by strategically planning financial moves within the framework of the law.