Difference Between GST and Income Tax

The Goods and Services Tax (GST) significantly differs from income tax, serving distinct purposes within the broader Indian taxation framework. GST is an indirect taxation method that aims to streamline the existing tax system by eliminating other multiple taxes. On the other hand, income tax is directly levied on individuals and businesses based on their annual income. If you want to understand the difference between GST and income tax in detail, keep reading this guide.

What Is GST and How Does it Work?

The Goods and Services Tax is a destination-based tax acquired by sellers of goods and services. It has replaced all other indirect taxes that were collected before, such as service tax, VAT, central excise duty, etc. Since its introduction, the Government of India has experienced a smooth transfer of tax credits from suppliers, thus eliminating the cascading effect to a great extent.

\It has three primary components: IGST, CGST and SGST. When the GST is applied by the Central Government on taxable supplies, it is classified as CGST. Whereas, SGST is the GST component which is imposed by the concerned state authorities. Both CGST and SGST are levied for intra-state supply of goods and services.

When an interstate supply of goods or services takes place, the Central Government applies IGST on those transactions. These indirect taxes are governed by the GST Act, which came into force on July 1st, 2017.

Types of GST Returns

In India, taxpayers may need to file various types of GST returns. The most common types of GST returns, depending on the specific business type, are as follows:

• GSTR-1

This form is submitted by business owners who must reveal their sales turnover or outgoing supplies on a monthly basis.

• GSTR-2A

It is an automatically generated report that declares the details of all purchases executed by a registered taxpayer.

• GSTR-3B

Taxpayers should issue Form GSTR-3B to put forward details regarding their sales, purchases and input tax claims.

• GSTR-4

Small business owners access this form to process quarterly return. It has different fields for GST returns on a quarterly basis.

• GSTR-5

It is a reserved form for NRIs who are temporarily registered under the GST Act in India.

• GSTR-6

Input Service Distributors (ISDs) file this report to distribute ITC among their units.

• GSTR-7

Any entity that deducts TDS from other taxpayers must access this form and submit it within the relevant timeframe.

• GSTR-9

All registered taxpayers must submit GSTR-9 yearly. It gives a summary of all the claims for input tax credits and a detailed list of all transactions made during the previous financial year.

• GSTR-10

You only need to use this if you wish to cancel your registration under GST.

Filing and Due Dates for GST Returns

The GST filing due dates vary based on the type of return and the concerned individual’s annual income. For instance, business owners must submit the GSTR-1 within the 11th day of the following month. Similarly, GSTR-3B needs to be uploaded within the 20th of the next month. Consequently, GSTR-9 is an annual return and must be submitted on 31st December.

Additionally, if you are a registered taxpayer with revenue less than or equal to ₹5 crores then you may opt for quarterly filing of GSTR-3B and GSTR-1 instead of every month. In case you miss the timeline, late fees and interest charges are levied on the amount owed towards the Government of India.

Penalties for Non-compliance

There are set rules regarding the imposition of fines, interest and late charges for taxpayers who fail to meet their respective GST criteria. Even imprisonment is a possible consequence besides financial obligations for individuals guilty of tax avoidance.

If GST returns are not filed on time, late fees are applied at a rate of ₹50 per day, with a maximum penalty of 0.25% of the registered taxpayer's revenue. The same fee is ₹20 per day for individuals with no obligation. Additionally, the overdue taxes are subject to a yearly interest rate of 18%. To maintain the validity of GSTIN, one must adhere to these rules.

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What Is Income Tax and How Does it Work?

Income tax is a direct tax levied from both businesses and individual income earners according to their yearly income. While calculating the tax amount, the taxable income after deductions and appropriate tax slabs are cautiously adhered to.

The funds raised through income tax are used for public healthcare, general infrastructure development and education. It is essential for taxpayers to file income tax returns and clear off their tax dues on time.

Types of Income Tax Returns

According to their business nature and revenue sources, individuals and businesses must file several categories of Income Tax Returns (ITRs). The ITR-1 form is accessed by individuals who get monthly wages or pensions. Similarly, the ITR-2 form is used by entities earning through dividends, capital gains or international transactions.

However, for businesses, there are three different ITR forms: ITR-3, ITR-4, and ITR-5. The one that needs to be selected by the business specifically depends on their annual turnover and list of revenue sources.

Filing and Due Dates for Income Tax Returns

To avoid late fees, individual taxpayers and businesses must file income tax returns within the prescribed deadlines.

Conventionally, for individuals, the deadline for filing ITRs has been set as 31st July of the assessment year. For business corporations and partnership firms, the last ITR filing date is 30th September of the assessment year.

You can use two methods to submit the income tax returns:

• By mailing a paper copy to the Income Tax Department
• By opting for the e-filing option on the official Income Tax website

Penalties for Non-compliance

A late income tax filing can cost you fines of up to ₹10,000. It includes penalties of 50% to 200% levied on the tax evaded along with additional interest charges. Repeated instances can even result in a prison sentence. 

Difference Between GST Return and Income Tax Return

Income tax and GST differ primarily in how they are imposed. While income tax is based solely on an entity's annual income, GST is imposed based on the consumption of goods and services. Simply put, income tax is a direct taxation method, unlike the GST.

In the following table, you can find some key differences between the two taxation systems:

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Calculation Differences

You can notice prominent differences while analysing the calculation of GST and ITR filing. When GST is evaluated, the combined value of supplies (consumer products/services) is considered. On the other hand, ITR is calculated based on the net income after all sorts of deductions and exemptions.

Compliance Differences

Both in the case of GST and income tax payment, if the taxpayer fails to meet the guidelines, they become liable to pay penalties. Sometimes even stricter legal consequences follow.

If you are not able to clear the GST dues on time, imprisonment can follow along with monetary penalties. However, ITR non-compliance leads to extra charges of up to ₹10,000 on the unpaid amount.

Are VAT and GST the Same?

GST and VAT are two separate forms of indirect taxes. GST is paid by consumers against the supply of goods and services. Contrarily, VAT or Value-Added Tax is collected by the state government from manufacturers of supplies at different stages of the supply chain. With no intervention from the Central Government, the tax liability of VAT varies from state to state.

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Significant Differences Between GST Filing and ITR Filing

As both GST and income tax are different regimes, the procedures for filing returns also vary from each other. In the following section, you can understand this in a better manner:

• Under GST, there are 13 returns altogether. Hence, taxpayers must access the forms according to their nature of business. Conversely, 7 types of income tax returns exist as per the IT Act. You must file only those that apply to you.
• Businesses managing a turnover of more than ₹40 lakhs (for goods) or ₹20 lakhs (for services) must file GST returns. At the same time, income tax returns should be filed by all Indians who have a source of income exceeding ₹2.5 lakh. 
• Finally, GST returns are to be filed monthly, quarterly and even annually. On the other hand, ITR filing as per income levels is necessary once a year.

Conclusion

The collection of GST and income tax plays a crucial role in sustaining and bolstering a country's economy. In addition, paying adequate indirect and direct taxes on time makes a registered taxpayer eligible for all kinds of tax benefits like exemptions, tax credits and deductions. Therefore, it is beneficial to understand the differences between the GST and income tax structures to responsibly maintain all relevant records.

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