GST vs. Income Tax: What Does GST Mean for India’s Income Tax Collection?

GST (Goods and Services Tax) is an indirect, consumption-based tax that went into effect in India in July 2017 to replace all other indirect taxes, such as sales tax and service tax. In India, income tax has a long history. It is a direct tax placed on Indian citizens’ earnings/profits. Our country’s economy depends on both direct and indirect taxes. Let’s look at how GST and income tax interact with one another. As well as the parallels and distinctions between the two.

Also Read: GST Registration

Goods and Services Tax (GST)

The goods and services tax (GST) is a value-based tax, similar to the VAT. That is imposed on products and services produced and sold for domestic consumption. Businesses are required to pay GST at each point of the supply chain, but the final cost is borne by the customer. To avoid double taxation on the same supply, some nations, notably India, have introduced GST with an Input Tax Credit (ITC) mechanism.

In India, GST is levied on the majority of consumable products and services. GST in India comprises five tax slabs for distinct categories of supplies: 0%, 5%, 12%, 18%, and 28%. A few items, such as gasoline and fuel, are free from GST.

Income Tax in India

Individuals and taxpayers are subjected to an income tax. Which is a direct tax applied on their gross income or profits for the fiscal year. Businesses pay income tax on their profits and revenue, but not on the supplies they make. In some nations, tax eligibility is determined by a set of criteria or a set of thresholds. In most countries, companies take income tax directly from employees’ salaries and pay it to the IT department. Residents and non-residents who earn a living in India must pay income tax.

Income tax is collected on wages, other sources of income, real estate, capital gains, company, and other professions.

What effect does the GST have on India’s income tax?

The government has launched GST with a dedicated digital system known as the GST Network (GSTN). Which allows users to manage all GST-related matters online through a single page. This also makes it easier for firms to keep accurate tax records and calculate their annual revenue. As a result, calculating their income tax burden is simple.

The income tax department can simply determine a person’s or business’s tax liability by comparing their filings for total turnover details to identify any discrepancies and detect tax evaders.

Many businesses used to record a different stock value in their VAT returns than in their IT returns before the introduction of GST, mainly in order to commit tax fraud or maintain a better credit score. However, GSTN makes it easier for the income tax department to compare returns and compute a person’s or business’s correct income tax burden. This, in turn, will increase tax revenue collection.

The service provider may face an increase in income tax as a result of the GST. GST has an input credit mechanism that lowers the cost of goods, increasing the profit margin for the seller.

Income Tax and GST have a lot in common.

The fact that both income tax and GST are paid by the consumer is a major commonality. We pay income tax on our earnings and profits. As well as GST on the use of numerous industries, services, and products, such as restaurants and theaters.

Income Tax vs. GST

The contrasts between these two primary tax systems are listed below.

  • GST is a consumption tax, whereas income tax is a profit/income tax.
  • GST is a type of indirect tax, whereas IT is a type of direct tax.
  • GST is a multi-stage tax that is imposed at each level of the supply chain, whereas income tax is imposed once a year on gross income less qualified savings.
  • GST returns are due quarterly or monthly, depending on the kind of return, whereas income tax returns are due once a year.
  • The income tax payment threshold is INR 2,50,000 per year, whereas firms with an annual turnover of more than INR 20,00,000 must register for GST.
  • GST (indirect taxes) is believed to have a greater impact on the economically disadvantaged, whereas income tax mostly impacts the middle and upper classes.
  • The total tax collected by GST is more than the total tax collected by income tax.
  • Input tax credit (ITC) is a feature of the GST that permits taxpayers to receive a refund of the tax; however, income tax does not have this feature.

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