12 Differences: Income Tax and GST

The Indian government imposes two distinct kinds of taxes, namely Income Tax and Goods and Services Tax (GST).

Here are the key differences between Income Tax and GST:

(1) Purpose

Income Tax: The main objective of Income Tax is to produce funds for the government and guarantee an equitable allocation of the tax responsibility depending on the earnings obtained.

GST: The GST has been introduced with the primary objective of streamlining the indirect tax structure, ensuring consistency, and eradicating the cascading impact of taxes. Its goal is to establish a more effective and open tax mechanism for the provision of goods and services.

(2) Nature of Tax

Income Tax: Individuals, businesses, and other entities are subject to a direct tax known as Income Tax. The amount of tax owed is determined by the taxpayer’s taxable income.

GST: The taxation system known as GST is an indirect tax imposed on the provision of goods and services. It is enforced at every level of the supply chain, starting from the producer to the ultimate purchaser. The calculation of GST is determined by the value added at each stage of the supply chain.

(3) Applicability

Income Tax: Individuals, Hindu Undivided Families (HUFs), companies, partnerships, and other taxable entities are subject to Income Tax on their earnings. The tax is applicable to residents and non-residents based on their income sources and length of stay in India.

GST: Goods and services tax (GST) is enforceable on the supply of goods and services within the geographical boundaries of India. It is applicable to both businesses and individuals who are engaged in the sale, purchase, or provision of goods and services, provided they meet the turnover thresholds as specified by the GST regulations.

(4) Tax Base

Income Tax: To determine the taxable income of a taxpayer for Income Tax purposes, allowable deductions and exemptions are subtracted from their total income. This resulting amount serves as the tax base.

GST: The value of the goods or services provided is the tax base for GST. This comprises the supply price, as well as any taxes, duties, cesses, and incidental expenses imposed by the supplier.

(5) Calculation and Rates

Income Tax: The rates of Income Tax are progressive, implying that they fluctuate according to the income bracket of the taxpayer. After taking into account deductions and exemptions, the tax obligation is determined by the relevant slab rates.

GST: Various tax slabs, namely 5%, 12%, 18%, and 28%, are assigned to GST rates depending on the category of goods or services. Moreover, there may be particular goods and services that are subject to unique rates or exemptions.

(6) Filing and Returns

Income Tax: Every year, taxpayers must submit an Income Tax Return (ITR) to disclose their income, deductions, and tax responsibility. The type of ITR form to be used is determined by the taxpayer’s income sources and category.

GST: Under GST regulations, entities that are registered businesses must submit regular GST returns, which can include GSTR-3B, GSTR-1, or GSTR-9, depending on their registration type and turnover. These returns serve to document the information about the supplies that were made, the taxes that were collected, and the input tax credit that was claimed.

(7) Tax Authority

Income Tax: In India, the administration and regulation of Income Tax is carried out by the Central Board of Direct Taxes (CBDT) in accordance with the Income Tax Act of 1961.

GST: In India, the administration and regulation of GST is overseen by the Goods and Services Tax Council, which comprises the Finance Ministers of both the central and state governments. The Central Goods and Services Tax Act, 2017, and the corresponding State Goods and Services Tax Acts are the governing laws for GST.

(8) Taxable Event

Income Tax: Income Tax considers the earning of income by an individual or entity as the taxable event. The basis of this taxation system is either the ‘accrual’ or ‘receipt’ of income.

GST: The occurrence that is subject to taxation under GST is the provision of goods or services, encompassing the exchange, sale, transfer, barter, lease, rental, or provision of goods or services in exchange for compensation.

(9) Scope

Income Tax: Individuals and entities are required to pay taxes on all forms of income, such as salary, business profits, capital gains, rental income, and more, under the Income Tax regulations.

GST: The scope of GST encompasses the provision of both tangible and intangible goods as well as services. However, it does not take into account the income generated by individuals or entities.

(10) Tax Incidence

Income Tax: The responsibility of paying Income Tax lies with the taxpayer who is subject to the levy. The weight of the tax rests on the person or organization that generates the earnings.

GST: The end consumer ultimately bears the burden of GST as it is included in the price of goods or services. Typically, GST is a tax based on consumption and the final consumer is responsible for paying it.

(11) Exemptions and Deductions

Income Tax: Taxpayers can claim exemptions, deductions, and allowances provided by Income Tax to decrease their taxable income and minimize their tax liability. These may comprise deductions for investments, specific expenses, and particular sources of income.

GST: In general, GST does not offer individualized exemptions or deductions based on a taxpayer’s situation. Nevertheless, some products and services may be completely exempt from GST or subject to reduced tax rates.

(12) Impact on Individuals vs. Businesses

Income Tax: Individuals, salaried employees, self-employed individuals, and businesses earning income are primarily impacted by Income Tax. The taxpayer’s personal and business income are taken into account.

GST: The impact of GST is mainly felt by businesses that provide goods and services. It centers on the transactions and value enhancement that take place throughout the supply chain.

The differences between Income Tax and GST underscore their contrasting nature, scope, and goals. Income Tax is centered on individual and entity income, whereas GST is centered on taxing goods and services at each stage of the supply chain.

It is crucial to recognize that Income Tax and GST are separate taxes with distinct objectives, applicability, calculation methods, and administrative authorities. They perform different roles in India’s overall tax system.


Nikesh-Mehta-AllOnMoney

Hi, I am Nikesh Mehta, owner and writer of this site. I’m an analytics professional and also love writing on finance and related industry. I’ve done online course in Financial Markets and Investment Strategy from Indian School of Business. I can be reached at [email protected].


Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.