Income tax in India is a direct tax levied on the income earned by individuals, businesses, and other entities. It is governed by the Income Tax Act of 1961. Under this act, income from Salary, House property, Business or profession, Capital gains and other sources are taxable in India.
Income tax is a tax imposed on individuals or entities based on their income or profits.
Income tax is calculated based on the taxable income and applicable tax rates, which can vary by income bracket.
Both individuals and businesses generally file income tax returns annually. Common deductions include those for expenses, investments, and certain tax-saving instruments.
Goods and Services Tax (GST) is a comprehensive indirect tax system implemented in many countries, including India. GST is designed to streamline and unify the taxation of goods and services under a single framework.
In India, GST replaces multiple indirect taxes such as excise duty, service tax, and value-added tax (VAT) with a single tax, simplifying the tax system.
GST (Goods and Services Tax) is a value-added tax applied to the supply of goods and services.
Businesses with a turnover above a specified limit must register for GST.
GST is calculated as a percentage to the taxable value of supply of goods and/or services typically at rates determined by the government.
GST returns are usually filed monthly or quarterly, depending on the business’s turnover and local regulations.
Businesses can claim input tax credits on GST paid for goods and services used in their operations.
Frequently Asked Questions (FAQs)
Can one offset income tax against GST?
No, income tax and GST are separate taxes and cannot be offset against each other.
Are income tax and GST collected by the same authority?
No, income tax is typically collected by the central government, while GST may be collected by both central and state governments.
How do income tax slab and GST rates work?
Income tax is structured in slabs, where different portions of income are taxed at varying rates. Partnership firms and companies are taxed at a flat rate with no income tax slab.
GST rates vary based on the type of goods or services, typically categorized into different brackets (e.g., 5%, 12%, 18%, 28%).
What documents are required for filing income tax and GST return?
Documents may include income statements, tax deduction certificates, and proof of deductions or investments.
Businesses typically need sales invoices, purchase invoices, and records of input tax credit claims.
How does income tax and GST affect pricing for consumers?
Income tax does not directly affect consumer prices but may influence how businesses price their products based on net income.
GST is included in the sale price, potentially increasing the overall cost of goods and services for consumers.
Is income tax a direct or indirect tax?
Income tax is a direct tax, as it is levied directly on individual and corporate income.
Is GST a direct or indirect tax?
GST is an indirect tax, as it is charged on the supply of goods and services.
Who needs to register for income tax and GST in India?
Individuals and entities earning above the basic exemption limit must register for income tax.
Typically, businesses with an annual turnover exceeding 40 lakhs (or 20 lakhs for professionals) must register for GST. For specified states, the limit is 20 lakhs and 10 lakhs for businesses and professionals, respectively.
Here’s a comparison of GST and Income Tax:
| Feature | Goods and Services Tax (GST) | Income Tax |
| Nature of Tax | Indirect tax levied on the supply of goods and services | Direct tax levied on income earned by individuals and entities |
| Taxpayer | Consumers ultimately bear the tax; collected by businesses | Paid directly by individuals, companies, and organizations |
| Scope | Applies to all most all goods and services supplied in India | Applicable to various sources of income, including salary, business profits, capital gains, etc. |
| Tax Rates | Multiple rates based on goods/services (e.g., 5%, 12%, 18%, 28%) | Progressive tax slabs based on income brackets (e.g., 0%, 5%, 20%, 30%) |
| Input Tax Credit | Allows businesses to claim credit for GST paid on inputs, reducing tax liability | No provision for input tax credit; however, deductions and exemptions can be claimed based on eligibility |
| Filing Frequency | Monthly or quarterly returns based on taxpayer type | Annual return filing, with some categories requiring advance tax payments |
| Administration | Jointly administered by Central and State governments | Primarily administered by the Central Government through the Income Tax Department |
| Compliance Requirements | Regular filing of GST returns; record-keeping for sales and purchases is essential | Annual income tax return filing; maintenance of records for income and deductions |
| Impact on Pricing | Directly impacts the final price of goods and services | Indirect impact on disposable income; affects consumer spending |
| Revenue Generation | A significant source of revenue for both Central and State governments | Major source of revenue for the Central Government |
| Penalties for Non-Compliance | Penalties for late filing, incorrect returns, or non-payment | Penalties for late filing, under reporting income, or non-payment |
| Return Filing | Requires detailed sales and purchase reporting | Involves reporting total income and deductions |
| Objective | Streamline indirect taxation and compliance | Generate revenue based on individual/business income |
| Refund Mechanism | Refunds for excess tax paid or unutilized input tax credit are available | Refunds for excess tax paid (TDS) can be claimed in the income tax return |
