GST vs Income Tax: Difference Between GST and ITR Filing

As a taxpayer in this country, it is crucial to understand the tax system and how you can file direct and indirect taxes in India. A basic understanding of these two tax structures simplifies taxes for individuals and small businesses and helps them follow all compliances properly. Timely payments and filing of taxes also help them prevent penalties or making any mistakes.

In this blog, we have covered all basic differences between GST and income tax and how to file returns for each tax system. 

GST vs Income Tax 

The tax regime in India is classified into two broad categories, i.e. direct taxes and indirect taxes. Direct tax is a tax levied directly on an individual's income, whereas indirect taxes are levied on their consumption of goods and services. 

Income tax, governed by the Income Tax Act 1961, is a part of the direct tax system in India. On the other hand, the Goods and Services Tax (GST) is an indirect taxation system governed by the Goods and Services Act 2017. It was formed by subsuming all other indirect taxes, i.e. VAT, service tax, central excise duty, etc.

Is income tax a type of direct tax or indirect tax? 

Income tax is a direct tax levied on anyone who earns an income in India, irrespective of their residential status. These are non-transferable taxes, and you cannot shift the burden of tax payment from one person to another. The taxable entities include individuals, Hindu Undivided Families (HUFs), Body of Individuals (BOIs), Association of Persons (AOPs), local authorities, corporates etc.

Income tax is levied as a percentage of the taxable income and is to be paid annually. Presently, two direct tax regimes are prevailing in India, i.e. the new tax regime and the old. The new tax regime was introduced in the Union Budget 2020, and individuals and HUFs can choose between these two regimes. 

Is GST a type of direct tax or indirect tax?

Goods and Services Tax (GST) is an indirect tax and is a relatively new tax law in India. The Central Government introduced it to simplify indirect taxes and to remove any cascading effect of multiple levels of taxation. It is the only prevailing indirect tax levied in the entire country at present.

Both central and state governments charge GST. In the case of intra-state supply, the Central Goods and Services Tax (CGST) and the State Goods and Service Tax (SGST) are levied. Whereas, in the case of inter-state supply, Integrated Goods and Services Tax (IGST) and SGST are levied.

Since this is a destination-based tax, it is levied on the place where goods and services have been consumed and not at the point of supply. So, if a supplier from Bihar supplies goods to a business in Gujarat, then the government of Gujarat will levy the SGST and not the government of Bihar.

Difference between GST and income tax 

Here are some prominent differences between  GST and the income tax act for a better understanding. 

Difference between GST filing and ITR filing

Since GST and income tax are based on entirely different concepts, their return filing systems are also different. The calculations to determine the payable tax, forms, compliances, penalties, and the frequency of filing taxes also vary. 

The following table explains these differences between the two taxes in a much more detailed way.

Final Words

Taxes form a crucial part of a country's economic system. As a taxpayer, it is beneficial and important for a person to know the basics of the direct and indirect system of taxes. Paying taxes properly also makes you eligible for input tax credits, exemptions and deductions as applicable. It also helps the government keep a record of an individual and a business, their earnings, spending and other relevant records. Paying taxes timely and honestly is the responsibility of every country's citizens. Knowing the difference between different taxes takes you one step closer to diligently meeting your responsibilities.