GST

What is the difference between GST & Income Tax?

Taxes are classified into two types- Direct and Indirect taxes. Direct taxes refers to the tax that is levied directly on your income and wealth, whereas indirect tax means taxes that are charged indirectly to the consumers of goods and services. GST is an indirect tax. In short, income tax is payable in your capacity as individual, and GST is payable in your capacity as consumer. Let’s know more about GST and Income Tax.

An overview on Taxes

Tax refers to an involuntary fee which is collected by the government from individuals or corporations every year. Tax collection and payment of tax is law enforced by every government.

However, tax and taxation policies may be different from one country to another. The primary purpose of collecting taxes is to finance several activities of the government. The system of taxing has existed for a long time.

Earlier it was import tax that was charged when goods are sent to a country. There were countries which levied taxes on consumption as well. With the passage of time and the need for more funds, especially during the war times, various governments started imposing taxes on various other things also. They charged taxes on real estate property, and that too temporarily.

Income tax was introduced by Great Britain in 1799. This was followed by turnover or purchase tax by Germany later.

Today taxes are of various types. The most prominent tax^[1] that one pays in the current times is the Goods and Services Tax (GST) and the Income Tax. Both these taxes benefit the government, but there are significant differences in the taxation policy. In the next segment, we have discussed the difference between GST and Income Tax.

GST and Income Tax: Major Differences

The significant difference between GST and Income Tax is that the GST is levied on the consumption of the goods and services, whereas income tax is levied on the income of a person. In a way, GST is an indirect tax, whereas income tax is a direct tax.

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 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 government.	It is a direct tax paid to the government.
Tax filing norms	GST Registration is required if the turnover is more than 40 lakh rupees per year.	Income tax should be paid if the annual income of a person is more than 2.5 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 the one who earns more than 2.5 lakh rupees income should pay the tax on his own.
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 wide coverage as all members of the society are taxed.	It is confined to an entity or to 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 a comprehensive, multi-stage and destination-based tax. It is called comprehensive due to the fact that it has subsumed various indirect taxes to one form. It has replaced indirect taxes such as central excise duty, services tax, additional customs duty and certain value-added tax.

GST is called destination-based tax because the tax is levied on where it reaches and not where it came from. Thus the burden of tax can be shifted from a person to another.

GST was introduced as one indirect tax for the entire country, and cascading of many taxes is avoided by using this taxation method. GST can be filed online.

Income Tax-

Income tax is what government imposes on the income. It is one of the significant sources of income for the government. The tax collected is used for the development of the country. The tax % is directly proportional to income earned by an individual, which means that the higher the income, the higher is the tax to be paid.

Conclusion

It is a mandate for every citizen of the country to pay taxes and pay them on time. GST and Income tax comes under Indirect and direct taxes, respectively. They contribute majorly to the governments’ income. Income tax is payable in your capacity as individual, and GST is payable in your capacity as consumer.

Read our article:How can you obtain GST Business Loan in India?