GST

What is the difference between GST & Income Tax?

Overview

GST (Goods and Services Tax) and income tax are separate tax kinds with different objectives. GST is an indirect tax on the supply of goods and services based on consumption and aims to simplify the tax system by displacing several other indirect taxes. Contrarily, income tax is a type of direct tax levied against people and businesses based on their earnings. The Government imposes it to raise money and pay for social welfare and public service programmes. Income tax is more individualised and based on income levels than GST, which concentrates on taxing consumption and targeting the earning potential of people and companies.

What is GST, and how does it work?

An indirect tax levied on providing goods and services tax or GST. It replaces indirect taxes, such as excise, service, and VAT. The GST system facilitates a smooth transfer of tax credits from suppliers to receivers and reduces taxes’ cascading effect on the final cost of goods and services. It is a destination-based tax, meaning it is not gathered at the production site but at the consumption site.

Types of GST returns

Taxpayers may be required to submit multiple types of GST returns, depending on their business’s operations and sales. The most typical GST return types are as follows:

• GSTR-2A: This automatically generated report provides the specifics of any purchases or inbound supplies made by a registered taxpayer.
• GSTR-1: Registered taxpayers who must disclose the details of their sales or outgoing supplies produced during the month must submit GSTR-1.
• GSTR-3B: Taxpayers must submit GSTR-3B, a report summarizing their sales, purchases, and input tax credit claims.
• GSTR-4: This quarterly report is required from taxpayers who selected the GST Composition Scheme.
• GSTR-5: This return must be filed by non-resident taxpayers who registered for GST and made supplies in India.
• GSTR-6: This report must be filed by Input Service Distributors (ISD), who distribute the input tax credit to their respective units.
• GSTR-7: This form must be filled out by taxpayers who are required under the GST to deduct TDS (Tax Deducted at Source).
• GSTR-9: Every year, all registered taxpayers must submit GSTR-9, which contains an overview of their claims for input tax credits and a list of their sales and purchases for the prior fiscal year.
• GSTR-10: This report is required from taxpayers who have canceled their GST registration.

Filing and due dates for GST returns

Other GST filings have different filing and due dates based on the kind of return and the taxpayer’s yearly income. GSTR-1, for instance, is due on the eleventh day of the month after, and GSTR-3B is due on the twentieth day of the month after. The annual return, GSTR-9, is due on December 31 of the following fiscal year. If a taxpayer’s revenue is up to Rs. 5 crores, they can submit GSTR-1 and GSTR-3B quarterly rather than every month. Taxpayers must meet the deadlines to avoid late fees and interest charges.

Penalties for non-compliance

If GST criteria are not met, penalties for incomplete or erroneous filing, fines, interest, and even jail time for tax evasion may be imposed. Late costs for late GST returns are levied at Rs. 50 per day (Rs. 20 for taxpayers with no obligation), with a ceiling of 0.25% of the taxpayer’s revenue. Any unpaid or overdue taxes are additionally subject to an annual interest rate of 18%. Compliant taxpayers must adhere to compliance requirements and submit their returns on time to cancel moving their GST registration.

What is income tax, and how does it work?

Income tax is a type of direct tax that both individuals and businesses pay on their annual income. The taxable amount is calculated based on the taxpayers’ allowed deductions and the applicable income tax slab rates. Income taxes are collected by the government and used to fund public services, including healthcare, education, and infrastructure development. Taxpayers must file income tax forms to report their income and pay the necessary taxes.

Types of income tax returns

Depending on their revenue sources and business operations, individuals and businesses may be required to file various income tax returns (ITRs). The ITR-1 form should be used by people reporting income from wages or pensions must use the ITR-2 form, whereas those reporting income from capital gains, dividends, or foreign assets. There are three different ITR forms: ITR-3, ITR-4, and ITR-5, for business entities with different turnover and revenue sources.

Filing and due dates for income tax returns

Income tax returns (ITRs) must be filed by the deadlines of both individuals and corporations to avoid penalties. Ordinarily, the deadline for filing individual returns is July 31st of the assessment year; however, the deadline for the assessment year 2021–2022 has been extended to 30th September. Business entities, including corporations and partnership businesses, must file their ITR by 30^th September of the assessment year. The Income Tax Department’s e-filing website or mailing a paper copy of the form to the tax division are the two ways taxpayers can submit their ITR.

Penalties for non-compliance

Income tax regulations can be broken with fines of up to Rs 10,000 for late filing, interest on unpaid taxes, and fines of 50% to 200% of the avoided tax. Forging documents or dodging taxes could sometimes result in a prison sentence. Income tax returns must be filed accurately and on time to avoid these penalties.

GST and Income Tax: Major Differences

The main distinction between GST and income tax is that the former is assessed on the use of goods and services, whereas the latter is assessed on an individual’s income. The income tax is a direct tax, whereas the GST is an indirect one.

We have discussed some other differences between the two in the table made below:

COMPARISON PARAMETER	GST	INCOME TAX
Meaning or Definition	It is levied on the consumption of goods and services.	It is levied on the income made by a person in a particular year.
Tax Type	It is an Indirect tax which is paid to the Government.	It is a direct tax paid to the Government.
Tax filing norms	GST Registration is required if the turnover is more than 20 lakh rupees for the normal category and 10 lakh rupees for the particular category.	Income tax should be paid if a person’s annual income exceeds 3 lakh rupees.
Tax payment norms	The burden of the tax payment can be shifted to the final customer	The person can’t shift the burden to anyone as those earning more than 3 lakh rupees should pay the tax alone.
Heads of Tax	GST is levied on the goods purchased or services provided.	Income tax is levied on salary, house property, income from capital gain etc.
Coverage	It has comprehensive coverage as all members of the society are taxed.	It is confined to an entity or an individual taxpayer.
Transferability	It can be transferred from one person to another.	It cannot be transferred to anyone else.

GST and Income Tax: Other Details

GST–

• GST is considered comprehensive because it has integrated many indirect taxes into one form. It has replaced indirect taxes, including central excise duty, services tax, additional customs fee, and specific value-added tax.
• GST is also called a destination-based tax because it is calculated based on the final destination rather than the point of origin. The effect could be a shift in the tax burden from one person to another.
• The GST was implemented as a single indirect tax to prevent the cascading of numerous taxes. Online GST filing is an option.

Income Tax-

• To raise money, the Government collects income taxes. It ranks among the Federal Government’s significant sources of income. Tax money is used to fund investments in the development of the country. An individual’s income and the tax rate are directly inversely associated, so the more they earn, the more taxes they must pay.

Conclusion

In conclusion, their structure is the primary distinction between the GST and the income tax. While income tax is a direct tax that targets people and businesses based on their income levels, GST is an indirect tax that applies to providing goods and services. While income tax is intended to produce revenue for the Government and fund public services, GST attempts to streamline the taxing system and maintain uniformity in the tax structure. People and organisations must know these distinctions to navigate the tax landscape and complete their obligations efficiently.

Frequently Asked Questions

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