Introduction
Income Tax and GST are the crucial tax regimes applicable to working professionals and businesses in India.
Taxation holds a pivotal role in contributing to the economic structure of India. And these taxes fund public services, government schemes, as well as infrastructure development. The financial landscape is influenced by the Goods and Services Tax and Income Tax.
GST and Income Tax are essential factors of the revenue system of India, each serving varied purposes and applications. Thus, knowing the differences between GST and Income tax is vital. And, it is governed by separate regulatory bodies and legal frameworks. In addition, tax rates, compliance needs, and overall structure vary significantly.
This blog provides a major distinction between GST vs Income Tax, providing you with detailed insights into these two major financial components of the Indian taxation system.
What is GST or What is Goods and Services Tax?
Are you aware whether GST is a direct or indirect tax? Understanding this is crucial to gain a clear understanding of the GST taxation system.
Goods and Services Tax (GST) is an indirect tax applied to the sales of goods and services, ultimately paid by the customers. It was introduced in India on July 1st, 2017.
GST consolidates several indirect taxes into a single and comprehensive tax framework, replacing various taxes, including excise duty, service tax, VAT, among others. However, the implementation of GST on income has brought several benefits, including the elimination of tax cascading effects, establishing unified tax rates, improved tax compliance across the country, and easy access to tax services through an online GST portal.
Ultimately, combining multiple indirect taxes and GST reduces the overall burden of taxes, and promotes transparency.
Types of GST
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Central Goods and Services Tax (CGST)
CGST is imposed by the central Government of India on intra-state sales.
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State Goods and Services Tax (SGST)
This tax is collected by the state government on intra-state business transactions. It is collected in addition to CGST, when goods and services are supplied within the state.
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Integrated Goods and Services Tax (IGST)
This tax component comes into play during interstate transactions, where the supply takes place from one state to another. In this context, only IGST is collected, which is then distributed between the central and state governments. Nevertheless, it eliminates the necessity for multiple state entries and further tax complications.
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Union Territory Goods and Services Tax (UTGST)
UTGST is applied within the Union Territories of India, wherein these regions are directly administered by the central government.
GST Filing and Payment
Businesses are required to file GST on income regularly, reporting their sales, purchases, and tax amount paid. And, some of the key GST returns include:
GSTR 1- This return is filed either monthly or quality, detailing all the outward supplies, i.e. sales made by the businesses.
GSTR-3B- This is a tax summary filed monthly, highlighting the Income Tax Credit (ITC) claimed, tax liability, and the net tax payable.
GSTR-9- This is the annual tax return for taxpayers summarizing the monthly returns during the fiscal year. The deadline for paying the GST is December 31st.
In addition to above, there are many other types of GST returns which could be used as per your requirement.
Types of GST returns
- GSTR-1
- GSTR-2A
- GSTR-2B
- GSTR-3B
- GSTR-4
- GSTR-5
- GSTR-6
- GSTR-7
- GSTR-8
- GSTR-9C
- GSTR-10
- GSTR-11
What is Income Tax?
Income tax is a direct tax governed by the Income Tax Act, 1961 and levied on an individual’s annual income, regardless of their residential status. And, the final taxable amount is determined by calculating income tax slab rates and applicable deductions, which are then collected by the taxpayers. This tax is collected by the Central Government and used for various public services.
However, income tax is non-transferable, meaning that you cannot shift the burden of paying the taxes to other individuals. Some of the taxable entities include individuals, Body of Individuals ( OIs), local authorities, Hindu Undivided families (HUF), corporates, and Association of Persons (AOPs
Types of Income Tax
Individual Income Tax: This tax is determined by the annual income source and residency status of the individuals. However, the income brackets significantly influence the applicable tax rates.
Business Income Tax: This particular type of tax is applied to the annual income of businesses and is further determined by established rules and regulations.
Income Tax Filing and Payment
Filing Income Tax is an annual process for businesses and individuals. And taxpayers must file their IT returns for the previous financial year using a suitable Income Tax Return (ITR) form. Here are a few key aspects to consider:
Annual filing: The taxpayers must file their tax returns within the due date for Financial year 2024-25
- For employees: by July 31st 2025 and extended till September 15th 2025
- For Business: By October 31st, 2025
Tax payment: If the tax liability exceeds 10,000 Rs, taxpayers are required to pay an advance tax amount. Additionally, any outstanding tax liabilities must be settled before filing the current tax return.
Key Differences Between GST and Income Tax
The major difference between GST and Income Tax lies in their assessment criteria. GST is evaluated by the use of goods and services, while Income Tax is assessed based on the individual’s income.
To further clarify the differences between Income tax vs GST, here are a few key distinctions:
| Comparison Features | GST | Income Tax |
| Type of Tax | Indirect tax system | Direct tax system |
| Tax Base | Consumption of goods and services | Applicable to everyone getting annual income or profits from various sources |
| Administrative authority | State and central governments | Central government |
| Tax responsibility | Levied at various levels, finally consumer has to pay the tax | Burden of tax can’t be transferred from one person to another |
| Purpose | Simplifies various indirect taxes and limit its cascading effects | Revenue generation for the government |
| Visibility of the tax payer | Included in the cost of goods and services and then paid to the government | Paid directly by the taxpayer to the central government |
| Taxation Limit | Business above
turnover, must register for GST compulsorily |
An employer having income above 3 lakhs has to pay the tax under the new regime |
| Tax Return Filing
|
Filed monthly or quarterly, or annually, depending on the business turnover. Includes 13 types of GST returns | Tax is filed once a year |
| Taxation rates | GST rate varies based on goods and services (5%, 12%, 18%, and 28%) | Tax rates vary based on individual’s income brackets (5% to 30%) |
Conclusion
Taxes are the crucial components of the economic status of the country. Being a responsible taxpayer, it is essential to understand the difference between GST and taxation to make important fiscal decisions and ensure tax compliance.
GST is an indirect tax imposed on the consumption of goods or services, while income tax is a direct tax with tax rates that vary according to the income levels. Both GST and taxation have their advantages, challenges, and compliance rules.
Paying taxes on time helps the government to keep track of individuals and businesses records, including their expenses, earnings, and other financial information. Timely and honest tax payment is the responsibility of every citizen. Comprehending the differences between GST and income tax will take you a step ahead to fulfill your responsibilities and contribute to the nation’s progress.
