Difference Between GST and Income Tax (With Table)

GST vs Income Tax

Tax is an involuntary fee collected by the government from individuals or corporations every year. Tax collection and Tax payment is indeed a law enforced by every government.

Tax and Taxation policies may differ from country to country, however, the main purpose of collecting the tax is to finance several government activities. The system of taxing is existing for a long period in this world.

Earlier it was the import tax which was levied when goods are sent to a particular country. There were certain countries which levied the tax on consumption too.

With time and the need for funds during war times, governments started levying tax on various other aspects too. They were traditionally charging tax on real property and that too temporarily.

Income Tax was first introduced by Great Britain in 1799 as a war measure. This was followed by turnover or purchase tax later by Germany.

The taxes are of many types in modern days. The most prominent tax that exists in the current era is the GST and Income tax.

Both these taxes benefit the government in one or the other way, but there are differences in the taxation policy. The main difference between GST and Income Tax is, GST is levied on consumption of goods and services while Income Tax is levied on income or profit earned. In a way, GST is the indirect tax while Income tax is the direct tax.


 

Comparison Table Between GST and Income Tax (in Tabular Form)

Parameter of ComparisonGSTIncome Tax
Meaning/ DefinitionGST is the tax levied on the supply or consumption of goods and services.Income Tax is the tax that is levied on the income made in a particular year.
Tax Type.GST is an indirect tax that is paid to the government.Income tax is the direct tax paid to the government.
Tax filing NormsGST registration is mandatory if the turn over is more than 20 lakhs per year.Income tax must be filed if the annual income is more than 2.5 lakhs.
Tax Payment normsThe tax burden can be shifted to the final consumer.The person cannot shift the burden to anyone, the person who earns an income of 2.5 Lakhs and more must pay the tax on his own.
Heads of TaxGST is levied on goods purchased or services offered.Income tax is levied on Salary, House Property, Profit from the business, Income from Capital Gain.

 

What is GST?

GST, abbreviated as Goods and Services Tax is an indirect tax paid to the government. It is also called a consumption tax.

GST is considered as a comprehensive, multi-stage, destination-based tax.

It is called comprehensive because it has subsumed many indirect taxes to one form. It has replaced central excise duty, services tax, additional customs duty, surcharges, and certain value-added tax.

It is a multi-staged taxation system is because GST is imposed on every step of the production process. The tax is refunded in various stages of production and the final consumer pays the tax in buying the product or using the service,

Thus called as a destination-based tax, as the tax is levied on where it reaches and not where it came from. Therefore the burden of tax can be shifted from one person to another person.

GST becomes one indirect tax for the entire country. Cascading of many taxes is avoided by using this taxation policy.

As it is, GST has removed the tax on tax which means to say, the price of the product has reduced. GST is technology-driven and it can be filed online. It is a mandate that if the yearly turnover is 20 lakhs and above then registration of GST is a must. GST has improved the tax collection for a country.

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GST
GST
 

What is Income Tax?

Income tax is a type of tax levied on income earned per year. It is the tax that the government imposes on the income generated by a business.

Income tax is one of the sources of income for the government. The collected tax is utilized for many developments in the country.

The tax percentage is directly proportional to the income earned by an individual. Higher the income, the higher the tax to be paid.

Indeed, Income tax is the direct tax paid to the government. The income tax must be filed if an individual earns 2.5 lakhs or more in a particular year.

Individual income tax is also known as personal income tax. There is another one called business income tax which applies to businesses, corporations, partnerships, and also self-employed people.

Individual income tax is levied on the salary a person receives every year. It also includes the business income that a person makes in a particular financial year.

There are many ways to get tax exemptions. If invested in non-taxable forms, that amount of money does not come under taxable income.

Mainly, these exemptions are given to any loan repayment, insurance policies and House rent allowances. In a few cases, medical exemptions can be cited to get exemptions from paying tax.

Income Tax Return Forms
Income Tax

Main Differences Between GST and Income Tax

  1. Both taxes are benefiting the government in many ways. The main difference between GST and Income tax is, GST is levied on consumption of goods and services whereas Income tax is levied on income earned in a financial year.
  2. In way of collecting the tax, GST is the indirect tax paid to the government whereas Income tax is the direct tax paid to the government.
  3. GST is levied only on buying a product and using a service whereas Income tax is levied on salary, house, revenue from a business, income from capital gain.
  4. The tax burden of GST shifts from the manufacturer to the consumer whereas no such transfer can happen in income tax if a person earns income which reaches the benchmark of taxation, he/she is liable to pay the income tax.
  5. GST registration is mandatory if a company makes an annual turn over of 20 lakhs per year while Income tax is levied on individuals if the annual salary is more than 2.5 lakhs.

 

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GST vs Income Tax

 

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Conclusion

Taxes play a vital role in a country’s development. The nation relies on people for economic resources. Such resources help the government find infrastructural development in the country. It is indeed a mandate for every citizen to pay the tax on time.

It is a punishable offense if not paid. The other side of the coin is, by paying tax what is the citizen getting in return. With the advent of GST, the prices of the products have gone down drastically. The common man can afford a lot of things which he was dreaming of a few years ago.

Be it the indirect or the direct tax, a government’s policy must not be only collecting the tax but also showing tangible results to the citizens of the nation.


 

Word Cloud for Difference Between GST and Income Tax

The following is a collection of the most used terms in this article on GST and Income Tax. This should help in recalling related terms as used in this article at a later stage for you.

Difference between GST and Income
Word Cloud for GST and Income Tax

 

References

  1. https://www.rse.anu.edu.au/researchpapers/CEPR/DP684.pdf
  2. https://pdfs.semanticscholar.org/2aae/2a3ea27c1c6b1063a27b35b02c8f947e503c.pdf

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