Income Tax vs. GST: 10 Critical Differences You Must Know
Table of Contents
Introduction
The Goods and Services Tax (GST) and Income Tax are different tax systems with different objectives. The Goods and Services Tax (GST) is an indirect tax on the supply of goods and services that depends on consumption.
It aims to simplify the tax system by replacing several other indirect taxes. Conversely, income tax is a direct tax levied on businesses and individuals based on earnings. In this blog, we will discuss the difference between GST and Income Tax.
How does Goods and Services Tax operate?
A tax imposed indirectly on providing goods and services (GST). It replaces indirect taxes like VAT, excise, and service taxes.
The GST system lessens the cascading effect of taxes on the ultimate cost of goods and services and makes it easier for tax credits to be transferred from suppliers to recipients.
It is a destination-based tax, which means that the consuming site is where it is collected rather than the manufacturing site.
How does income taxation operate?
One kind of direct tax that both individuals and corporations pay is income tax, which is based on yearly income. The taxable amount determines the appropriate income tax slab rates and the taxpayers’ permitted deductions.
The government collects income taxes, which are used to pay for public services, including infrastructure development, healthcare, and education. Taxpayers must file income tax forms to record their income and make the required tax payments.
Regulation of the Income Tax Act’s Framework
The Income Tax Act’s legislative provisions clearly define the income tax’s regulatory system. Through targeted sections encouraging savings and investments for taxpayers, this extensive document describes rates, exemptions, deductions, and assessment methods.
Ensuring compliance and equitable application of the Income Tax Act is the responsibility of the Central Board of Direct Taxes (CBDT). The Income Tax Act of 1961 is a fundamental law that outlines the basic concepts and provisions governing income tax.
An annual act that supplements and amends the Income Tax Act is known as the Finance Act. International treaties forbidding dual taxation are double taxation avoidance agreements or DTAAs.
The GST Regulatory Framework
The GST Act, specifically the CGST & SGST Acts of 2017, lays forth the regulatory framework for GST.
These Acts give businesses and tax authorities a thorough set of guidelines by outlining the fundamentals, rates, and processes for introducing the Goods and Services Tax (GST).
The GST Council, comprised of delegates from the federal and state governments, is essential to the decision-making process regarding changing policies and adjusting rates.
This cooperative strategy guarantees a flexible and adaptable structure that can adapt to shifting market conditions and state-by-state variations in the Indian economy.
What is the difference between GST and Income Tax?
A thorough understanding of India’s tax system is essential for conducting business there, as it is based mainly on two main pillars: income tax and goods and services tax.
The fundamental distinctions between income tax and GST are found in their respective functions, need for regulatory compliance, and tax payment burden.
Difference Between GST and Income Tax
| Aspect | GST (Goods and Services Tax) | Income Tax |
| Nature of Tax | Indirect Tax | Direct Tax |
| Applicability | Applied to the supply of goods and services | Levied on the income earned by individuals and entities |
| Taxpayer | Paid by businesses and service providers; passed on to consumers | Paid directly by individuals and entities on their income |
| Tax Rates | Multiple rates: 0%, 5%, 12%, 18%, and 28% | Slab rates vary based on income brackets |
| Collected By | Central and State Governments | Central Government |
| Filing Frequency | Monthly, Quarterly, or Annually (depending on turnover) | Annually (with advance tax payments quarterly for some) |
| Regulation | Governed by the GST Act | Governed by the Income Tax Act, of 1961 |
| Purpose | To tax consumption of goods and services | To tax earnings and profits |
| Input Tax Credit | Allows for claiming credit on tax paid on inputs | No provision for input credit |
| Examples | GST on sale of electronics, GST on restaurant bills | Income tax on salary, Income tax on business profits |
Conclusion
In conclusion, there are various difference between GST and Income Tax. While income tax is a direct tax that targets people and businesses based on their income levels, GST is an indirect tax imposed on providing goods and services.
The Goods and Services Tax (GST) aims to maintain uniformity of the tax structure and simplify the tax system.
In contrast, the income tax seeks to fund public services and raise revenue for the government. Both people and businesses must be aware of these variances to fulfil their tax duties and navigate the tax system properly.
Ready to file your Income Tax Return? Whether it’s ITR-1, ITR-2, ITR-3, ITR-4, ITR-5, ITR-6, or ITR-7, we’ve got you covered! Need to respond to a tax notice or handle TDS filings? We can help with that too.
Get Your GST Compliance Sorted with Lawgical Adda! Whether it’s GST Registration, GST Return Filings, GST Annual Returns, GST LUT Filings, or GST Registration Cancellation, we’ve got you covered!
Lawgical Adda’s solution provides end-to-end management of corporate governance and secretarial compliances, encompassing every phase of the entity life cycle. Don’t hesitate to get in touch with us if you want more information on the compliance standards and to outsource them to us.
