FSSAI Full Form and Everything You Need to Know About It
26 Feb, 2025
By Online Legal India
Published On 27 Jan 2025
Category GST
In India, Income Tax and GST are two key components of a Tax System for individuals and businesses. These two components have different purposes. Through this article, a taxpayer will get a complete guidance regarding the tax system and filing direct and indirect taxes in India. Besides, you will learn fundamental differences between GST and Income Tax.
The tax regimes are classified into two broad categories, Direct and Indirect Tax. Direct tax depends on the individual’s income and Indirect tax levied on the supply of goods and services. Goods and Services Tax (GST) is an indirect taxation system based on the consumption of goods and services in India. It replaced various indirect taxes including excise duty, VAT, services tax, and so on. It was passed in the parliament and governed by the Goods and Services Act on 29th March 2017 and came into effect on July 1, 2017. However, the indirect tax is based on the manufacture, consumption, and sale of goods and services all over India.
Whereas, Income Tax is a direct tax system governed by the Income Tax Act of 1961 in India. The person who earned in the previous year will pay the tax directly in the next year. Direct Tax is considered as a proportion of taxable income which cannot be transferred to another individual. The taxation is controlled by the Central Government in India.
Income Tax is a direct tax which means a non-transferable tax depends on an Individual’s income irrespective of residential status in India. A person cannot transfer their tax payment from one person to another. Individuals, Body of Individuals (BOIs), local authorities, corporates, Hindu Undivided Families (HUFs), Association of Persons (AOPs), etc. are considered as taxable entities.
Income Tax is calculated as a Percentage on the basis of taxable income that will be paid annually in a year. There are two direct tax regimes that are the new and old tax regimes in India. The new tax regime contributes to lower rates of taxes for limited deductions and exemptions. This was introduced by the Union Budget of 2020. On the other hand, the old tax regime allows exemptions and deductions. An individual with non-business income will be eligible to switch between these two regimes. Individual and Hindu undivided families (HUFs) need to pay taxes with terms and conditions.
Goods and Services Tax (GST) is an indirect tax introduced by the Central Government. It replaced many indirect taxes including excise duty, services tax, VAT, etc. in India. It eliminates the cascading effect of multiple levels of taxation and simplifies indirect taxes in India. It is divided into two parts that is, the Centre and the State in the form of Central GST (CGST) and State GST (SGST), through which GST is charged by central and state governments. Intra-state supply levied on CGST and SGST. On the other hand, inter-state supply levied on Integrated Goods and Services Tax (IGST) and SGST.
It focuses on goods and services used by the consumer in their consumed state instead of supply. The state will have the right to collect GST where goods and services are imposed. It means the transaction will be counted as intra-state or interstate according to the place of supply.
There are some basic differences between Goods and Services Tax (GST) and Income Tax. Here are mentioned below:
|
Verticals |
GST |
Income Tax |
|
Type |
Indirect Tax |
Direct Tax |
|
Purpose |
It is based on the consumption of goods and services |
The person who earns annual income from salaries, house property, capital gains, and other resources will pay the tax directly in a year. |
|
Transferable |
This is transferrable from one place to another by the consumer. |
This is Non- Transferable. So, tax cannot be transferrable from one person to another. |
|
Collected by |
Both the central and state government collects the Indirect Tax. |
Only the central government collects the income Tax. |
|
Turnover Limit |
A business needs an annual turnover above Rs.40 lakh to register GST. |
An individual should have an annual income above Rs.2.5 lakhs to pay the tax under the old regime. In the case of the new regime, the threshold will be increased to Rs.3 lakh. |
|
Goal |
It focuses on simplifying indirect taxes and reducing the cascading effect of multiple indirect taxes. |
It generates revenue for the government. |
|
Taxpayer Types |
A tax is paid by Businesses, Consumers, Service Providers, etc. |
A tax is paid by individuals, Businesses, HUFs, Senior Citizens, etc. |
|
Tax Rates |
There are various rates for the categories of goods and services (5%, 12%, 18%, and 28%) |
It contains progressive tax rates for individuals on the basis of income slabs (5% to 30%). |
|
Penalties |
Penalties are charged for late filing and irrelevant information. |
Penalties for incorrect information, late filing, tax evasion, etc. |
|
International Transactions |
It is applicable for exports and imports. |
It is governed by DTAA Agreements. |
GST falls under the 4-tier tax structure of tax slabs in India. It contains 5%, 12%, 18%, and 28%, with certain goods and services over and above the applicable tax rate. It focuses on uniformity in taxation of goods and services for AY 2024-25. These rates are revised and reviewed by the GST council to adapt to the economic conditions and industry dynamics. The applicable rate for specific goods or services represents their tax liability and pricing strategy for businesses. These rates specify the government’s efforts to balance affordability and revenue generation.
Different GST slabs:
5% Slab: It specifies goods and services including transportation services and household items.
12% – 18% Slabs: It means the standard rates of goods and services for regular consumables and services.
28% Slab: It is applicable for luxury items and sin goods.
Income tax rates in India are progressive in accordance with the income of the individuals, where the high-earning people have to pay higher taxes, and vice versa. Hence, the Indian taxation system is designed in such a way that high-earning people contribute a larger share of their income to generate government revenue, promoting a sense of equity. Thus, people with lower and higher income brackets are slabbed with gradually increased tax rates in the financial year 2024-2025.
Individuals (Below 60 years):
Senior Citizens (60 to 80 years):
Very Senior Citizens (Above 80 years):
Both GST and income tax have different purposes, and they have different return filing systems. The calculations are based on payable tax, penalties, forms, compliance, and the frequency of filing taxes.
Here is the basic understanding differences between GST and Income Tax in a detailed way:
|
Verticals |
GST Returns |
Income Tax Returns |
|
Total Returns /Forms |
There are 13 returns under GST. Taxpayers file the forms which depend on their applicability. |
There are 7 forms that will be filed by individuals and entities as per the IT Act. |
|
Filed by |
It is filed by businesses contributing goods and services to consumers. |
Any person who has earnings will file income tax returns in India. |
|
Duration |
It is filed monthly, quarterly, and even annually. |
The taxpayer has to file it every year in a particular timeframe. |
Conclusion
Both GST and Income Tax are two different tax structures for businesses and individuals. A taxpayer needs to know the basic differences between GST and Income Tax in India. These differences will be helpful for the government to keep records of an individual and a business, their earnings, spending as well as other relevant records. If you have any questions and need guidance about GST and Income Tax, you can contact Online Legal India. They have experts to provide you with comprehensive legal advice and support.
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