For every taxpayer in India, it is important to know how the tax system works and the correct way to file both direct and indirect taxes. Having a clear understanding of these two types of taxes makes it easier for individuals and small businesses to manage compliance. It also ensures timely filing and payment, helping avoid penalties or errors.
This article explains the key differences between GST and income tax, along with the process of filing returns for each.
GST vs Income Tax
In India, taxes are broadly divided into two categories – direct taxes and indirect taxes. Direct taxes are applied directly to a person’s income, while indirect taxes are charged on the consumption of goods and services.
Income tax, regulated under the Income Tax Act, 1961, comes under the direct tax system. Goods and Services Tax (GST), on the other hand, is part of the indirect tax framework under the Goods and Services Tax Act, 2017. GST replaced several older indirect taxes, such as VAT, service tax, and central excise duty.
Is Income Tax Direct or Indirect?
Income tax is a direct tax charged on anyone earning income in India, regardless of residency. This tax cannot be transferred to another person, meaning the responsibility to pay remains with the taxpayer. Entities liable for income tax include individuals, Hindu Undivided Families (HUFs), Association of Persons (AOPs), Body of Individuals (BOIs), local authorities, and companies.
It is calculated as a percentage of taxable income and paid annually. Currently, two income tax regimes are available – the old tax regime and the new tax regime, introduced in the Union Budget 2020. Individuals and HUFs can choose either regime.
Is GST Direct or Indirect?
GST is an indirect tax introduced to simplify India’s tax structure and eliminate the cascading effect of multiple indirect taxes. It is now the only indirect tax applicable nationwide.
Both the central and state governments levy GST. For intra-state transactions, Central GST (CGST) and State GST (SGST) apply. For inter-state transactions, Integrated GST (IGST) and SGST are charged.
Being a destination-based tax, GST is applied where the goods or services are consumed rather than where they are supplied. For example, if a supplier in Bihar sells goods to a buyer in Gujarat, the SGST is collected by the Gujarat government, not Bihar.
Difference between GST and Income Tax
Understanding the difference between GST and Income Tax is essential for both individuals and businesses, as these two tax systems operate differently in scope, collection, and applicability.
Key Differences between GST and Income Tax
| GST Act | Income Tax Act |
| It is a type of indirect tax. | It is a type of direct tax. |
| Levied on the consumption of goods and services. | Levied on individuals/entities earning from salary, capital gains, house property, business, or other sources. |
| Collected at multiple stages but borne by the final consumer. | The burden of paying tax cannot be transferred to another person. |
| Businesses with annual turnover above ₹40 lakh must register for GST (₹20 lakh in special category states). | Individuals with income above ₹2.5 lakh (old regime) or ₹3 lakh (new regime) must pay income tax. |
| GST is levied and collected by both central and state governments. | Income Tax is levied and collected only by the central government. |
| The purpose is to simplify indirect taxation and remove the cascading effect. | The purpose is to generate revenue for the government. |
Difference between GST Filing and ITR Filing
Since GST and Income Tax follow different concepts, their return filing processes also vary significantly in forms, frequency, and applicability.
| GST Returns | Income Tax Returns |
| A total of 13 types of returns; applicability depends on the nature of business. | A total of 7 forms; applicability depends on income type and entity. |
| Filed by businesses supplying goods and/or services. | Filed by any person earning income in India. |
| Returns can be monthly, quarterly, or annually. | Returns are filed once a year. |
Final Words
Taxes form the backbone of a nation’s economic structure. As a responsible taxpayer, it is important to understand the difference between direct and indirect taxes. This knowledge ensures compliance, helps in availing benefits such as input tax credit, exemptions, and deductions, and maintains proper records with the government. Paying taxes timely and accurately is not just a legal duty but also a contribution to the nation’s growth.
Related FAQs
1. Is GST applicable to all businesses?
No, GST is mandatory only for businesses exceeding the turnover threshold limit (₹40 lakh for most states, ₹20 lakh for special category states).
2. Do salaried individuals need to file GST returns?
No, GST returns are only for businesses providing goods or services. Salaried individuals need to file Income Tax Returns (ITR) instead.
3. Can a person be liable for both GST and Income Tax?
Yes, if a person runs a business (liable for GST) and earns income above the exemption limit (liable for Income Tax), they must comply with both.
4. How is GST different from VAT or Service Tax?
GST replaced VAT, Service Tax, and several other indirect taxes, creating a single unified indirect tax system in India.
5. What happens if I don’t file my GST or Income Tax returns?
Non-filing attracts penalties, late fees, and in severe cases, legal action under the respective Acts.
6. Can I claim GST as an expense for income tax purposes?
Yes, GST paid on business purchases can be claimed as input credit under GST law, but for income tax, only non-creditable GST can be claimed as an expense.
