GST
Minakshi Bindhani
10 Jul, 2023
Table of Contents
Overview
GST (Goods and Services Tax) and income tax are separate tax kinds with different objectives. GST is an indirect tax on the supply of goods and services based on consumption and aims to simplify the tax system by displacing several other indirect taxes. Contrarily, income tax is a type of direct tax levied against people and businesses based on their earnings. The Government imposes it to raise money and pay for social welfare and public service programmes. Income tax is more individualised and based on income levels than GST, which concentrates on taxing consumption and targeting the earning potential of people and companies.
What is GST, and how does it work?
An indirect tax levied on providing goods and services tax or GST. It replaces indirect taxes, such as excise, service, and VAT. The GST system facilitates a smooth transfer of tax credits from suppliers to receivers and reduces taxes’ cascading effect on the final cost of goods and services. It is a destination-based tax, meaning it is not gathered at the production site but at the consumption site.
Types of GST returns
Taxpayers may be required to submit multiple types of GST returns, depending on their business’s operations and sales. The most typical GST return types are as follows:
- GSTR-2A: This automatically generated report provides the specifics of any purchases or inbound supplies made by a registered taxpayer.
- GSTR-1: Registered taxpayers who must disclose the details of their sales or outgoing supplies produced during the month must submit GSTR-1.
- GSTR-3B: Taxpayers must submit GSTR-3B, a report summarizing their sales, purchases, and input tax credit claims.
- GSTR-4: This quarterly report is required from taxpayers who selected the GST Composition Scheme.
- GSTR-5: This return must be filed by non-resident taxpayers who registered for GST and made supplies in India.
- GSTR-6: This report must be filed by Input Service Distributors (ISD), who distribute the input tax credit to their respective units.
- GSTR-7: This form must be filled out by taxpayers who are required under the GST to deduct TDS (Tax Deducted at Source).
- GSTR-9: Every year, all registered taxpayers must submit GSTR-9, which contains an overview of their claims for input tax credits and a list of their sales and purchases for the prior fiscal year.
- GSTR-10: This report is required from taxpayers who have canceled their GST registration.
Filing and due dates for GST returns
Other GST filings have different filing and due dates based on the kind of return and the taxpayer’s yearly income. GSTR-1, for instance, is due on the eleventh day of the month after, and GSTR-3B is due on the twentieth day of the month after. The annual return, GSTR-9, is due on December 31 of the following fiscal year. If a taxpayer’s revenue is up to Rs. 5 crores, they can submit GSTR-1 and GSTR-3B quarterly rather than every month. Taxpayers must meet the deadlines to avoid late fees and interest charges.
Penalties for non-compliance
If GST criteria are not met, penalties for incomplete or erroneous filing, fines, interest, and even jail time for tax evasion may be imposed. Late costs for late GST returns are levied at Rs. 50 per day (Rs. 20 for taxpayers with no obligation), with a ceiling of 0.25% of the taxpayer’s revenue. Any unpaid or overdue taxes are additionally subject to an annual interest rate of 18%. Compliant taxpayers must adhere to compliance requirements and submit their returns on time to cancel moving their GST registration.
What is income tax, and how does it work?
Income tax is a type of direct tax that both individuals and businesses pay on their annual income. The taxable amount is calculated based on the taxpayers’ allowed deductions and the applicable income tax slab rates. Income taxes are collected by the government and used to fund public services, including healthcare, education, and infrastructure development. Taxpayers must file income tax forms to report their income and pay the necessary taxes.
Types of income tax returns
Depending on their revenue sources and business operations, individuals and businesses may be required to file various income tax returns (ITRs). The ITR-1 form should be used by people reporting income from wages or pensions must use the ITR-2 form, whereas those reporting income from capital gains, dividends, or foreign assets. There are three different ITR forms: ITR-3, ITR-4, and ITR-5, for business entities with different turnover and revenue sources.
Filing and due dates for income tax returns
Income tax returns (ITRs) must be filed by the deadlines of both individuals and corporations to avoid penalties. Ordinarily, the deadline for filing individual returns is July 31st of the assessment year; however, the deadline for the assessment year 2021–2022 has been extended to 30th September. Business entities, including corporations and partnership businesses, must file their ITR by 30th September of the assessment year. The Income Tax Department’s e-filing website or mailing a paper copy of the form to the tax division are the two ways taxpayers can submit their ITR.
Penalties for non-compliance
Income tax regulations can be broken with fines of up to Rs 10,000 for late filing, interest on unpaid taxes, and fines of 50% to 200% of the avoided tax. Forging documents or dodging taxes could sometimes result in a prison sentence. Income tax returns must be filed accurately and on time to avoid these penalties.
GST and Income Tax: Major Differences
The main distinction between GST and income tax is that the former is assessed on the use of goods and services, whereas the latter is assessed on an individual’s income. The income tax is a direct tax, whereas the GST is an indirect one.
We have discussed some other differences between the two in the table made below:
| COMPARISON PARAMETER | GST | INCOME TAX |
| Meaning or Definition | It is levied on the consumption of goods and services. | It is levied on the income made by a person in a particular year. |
| Tax Type | It is an Indirect tax which is paid to the Government. | It is a direct tax paid to the Government. |
| Tax filing norms | GST Registrationis required if the turnover is more than 20 lakh rupees for the normal category and 10 lakh rupees for the particular category. | Income tax should be paid if a person’s annual income exceeds 3 lakh rupees. |
| Tax payment norms | The burden of the tax payment can be shifted to the final customer | The person can’t shift the burden to anyone as those earning more than 3 lakh rupees should pay the tax alone. |
| Heads of Tax | GST is levied on the goods purchased or services provided. | Income tax is levied on salary, house property, income from capital gain etc. |
| Coverage | It has comprehensive coverage as all members of the society are taxed. | It is confined to an entity or an individual taxpayer. |
| Transferability | It can be transferred from one person to another. | It cannot be transferred to anyone else. |
GST and Income Tax: Other Details
GST–
- GST is considered comprehensive because it has integrated many indirect taxes into one form. It has replaced indirect taxes, including central excise duty, services tax, additional customs fee, and specific value-added tax.
- GST is also called a destination-based tax because it is calculated based on the final destination rather than the point of origin. The effect could be a shift in the tax burden from one person to another.
- The GST was implemented as a single indirect tax to prevent the cascading of numerous taxes. Online GST filing is an option.
Income Tax-
- To raise money, the Government collects income taxes. It ranks among the Federal Government’s significant sources of income. Tax money is used to fund investments in the development of the country. An individual’s income and the tax rate are directly inversely associated, so the more they earn, the more taxes they must pay.
Conclusion
In conclusion, their structure is the primary distinction between the GST and the income tax. While income tax is a direct tax that targets people and businesses based on their income levels, GST is an indirect tax that applies to providing goods and services. While income tax is intended to produce revenue for the Government and fund public services, GST attempts to streamline the taxing system and maintain uniformity in the tax structure. People and organisations must know these distinctions to navigate the tax landscape and complete their obligations efficiently.
Frequently Asked Questions
Do I have to pay GST and income tax both?
GST is a tax everyone pays when they buy products and use services, unlike income tax, which is only paid if you fall into a certain salary level.
Is GST included in income tax?
Income tax and GST are both types of taxes. However, income tax is more of a direct tax. GST is charged when goods and services are consumed. A person must pay income tax on the money they earn in a given year. The Government collects it as an indirect tax.
Do I need to pay tax if I have a GST number?
A person who conducts business at any location in India or needs to be registered under the GST Act is called a “taxable person” under GST. Anyone who engages in economic activity, such as trade or commerce, is considered taxable.
Why should I pay income tax and GST?
Additionally, the Government offers subsidies or offers cooperative rates for cooking gas. A sizable portion of government spending must go into national defence and economic development. The Government uses taxes to fund various welfare measures, including job initiatives.
How much tax do I have to pay for GST?
Under the GST, there are five different tax rates for goods and services: 0%, 5%, 12%, 18%, and 28%. However, some goods, like those derived from petroleum, alcoholic beverages, and electricity, are exempt from GST taxes. According to the former tax system, each state’s government taxes these products separately.
What is the difference between GST and income tax?
While income tax is a direct tax paid on the income received by people and businesses, GST (products and Services Tax) is an indirect tax imposed on providing products and services.
Do business people pay income tax and GST both?
Yes, small businesses may also need to pay income tax, depending on their taxable income. A financial year’s total revenue is divided by business expenses to determine taxable income. In India, taxes on business revenue are based on the type of taxpayer.
Why is GST better than other taxes?
The GST has replaced several indirect charges that were in place under the previous tax system. The advantage of a single tax is that it applies the same rate to a particular commodity or service in every state. Tax administration is more straightforward since the Federal Government sets the tax rates and rules.
Do we need to pay both income tax and GST?
While GST is paid by everyone when they buy products and use services, income tax is only payable if they fall under a specified salary range.
Who pays income tax and GST?
Both the goods and services purchased and provided are subject to GST. Income taxes are levied on various sources of income, including wages, property, capital gains, and others. Taxes have a wide range since they are imposed on every person in society. Only taxpayers who are either individuals or corporations are subject to it.
What is the purpose of income tax?
The Government pays for many welfare programmes, including initiatives to create jobs, with tax money. The Government is responsible for covering the administrative expenses of the different departments’ thousands of employees.
Is paying income tax necessary?
The Government uses taxes to fund various welfare services, such as job programmes. Thousands of personnel work in numerous departments, and the Government is responsible for covering the administrative costs.
How is GST better than income tax?
Conceptually, GST and income tax returns are different since the value of goods and services is the focus of GST. In contrast, the net income after deductions and exemptions is the objective of income tax. GST is based on the total value of goods and services, whereas income tax is based on money earned.
What is the main advantage of GST?
GST lessens tax burdens and ensures tax payment compliance.GST facilitates business operations by streamlining the taxes process. This has a significant positive impact on company companies.
Why is GST better than indirect tax?
In India, indirect taxation systems like VAT, excise duty, and service tax have been exercised by the GST, or Goods and Services Tax. The primary justification for this is removing the economy-wide cascading effect of taxes.
How is GST different from other taxes?
The main distinction between the GST and the income tax is that the former is levied on purchasing and consuming goods and services, while the latter is levied on an individual’s income. Income tax and GST are both types of taxes. However, income tax is more of a direct tax. GST is charged when goods and services are consumed.
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