The Difference Between GST and Income Tax: What You Need to Know

Goods and Services Tax (GST)  is an indirect tax implemented to replace multiple existing indirect taxes such as excise duty, service tax, and VAT. It is levied on the supply of goods and services based on consumption rather than at the production stage.

The  GST framework  includes both the Central Goods and Services Tax (CGST) and the State Goods and Services Tax (SGST) for intrastate transactions and the Integrated Goods and Services Tax (IGST) for interstate transactions.

Our tax system is designed to avoid the cascading effect of taxes and facilitate smooth tax credit transfers between suppliers and receivers. By implementing GST, the government aims to streamline the tax process, promote transparency, and support economic growth.

The most common difference between GST and Income Tax include:

Difference Between GST Return Filing and Income Tax Return Filing

Even though both GST and income tax are part of the same tax system, the way returns are filed and reviewed is quite different.

Under GST, returns are linked to business transactions. You report details of outward supplies, inward supplies, tax collected and input tax credit. Different forms apply to different types of taxpayers and, in practice, many businesses file returns monthly or quarterly, with an annual return in some cases.

Under income tax, returns are linked to total income for the year. You report income from salary, business or profession, capital gains, house property and other sources, claim deductions and then calculate the final tax payable or refundable. For most taxpayers, the main income tax return is filed once a year.

Key points to remember:

• GST returns track your invoices, sales, purchases and tax payments throughout the year.
• Income tax returns summarise your income, expenses and deductions for the whole financial year.
• GST non compliance such as missing invoices, mismatched returns or delayed filings can also trigger questions when your income tax return is examined, because many numbers are cross checked.

This makes it important for businesses to stay consistent in both sets of records, GST as well as income tax.

How QRMP Scheme Compares With Income Tax Compliance for Small Businesses

QRMP changes the way small taxpayers handle GST compliance, and it is useful to see how this compares with income tax.

For GST under the QRMP scheme:

• A small business with turnover up to five crore rupees can choose to file GSTR 1 and GSTR 3B once every quarter, instead of monthly.
• The business still pays tax every month using a simple challan, either on a fixed sum basis or by self assessment.
• This means fewer return forms to file, less portal work and lower compliance load, while still staying on time with tax payments.

For income tax:

• The main income tax return is typically filed once a year after the end of the financial year.
• Depending on the level of tax liability, some taxpayers also have to pay advance tax in instalments during the year, but the detailed reporting of income and deductions happens only in the annual return.

So, in simple language:

• GST, even under QRMP, remains a high frequency compliance requirement. You stay close to your monthly sales and purchases.
• Income tax is more of a year end compliance. You look at the full year income and then file a single main return.

For a small business owner, this means:

• QRMP can make GST work feel lighter by cutting the number of returns, but you still need proper monthly records in your accounting software.
• Income tax still needs a clean year end picture, where your books, GST data and financial statements all match.

BUSY can support this by helping you track GST returns whether monthly or QRMP, generate accurate yearly financials and then use those numbers smoothly for income tax compliance.

Finally, let’s clear some myths that frequently revolve around GST and Income Tax:

• Myth 1: GST and Income Tax are the Same
  Fact: GST (Goods and Services Tax) and Income Tax are distinct taxes. GST is an indirect tax levied on the consumption of goods and services, while Income Tax is a direct tax imposed on an individual’s or business’s income. GST is collected at various supply chain stages, whereas Income Tax is based on earnings and profits.
• Myth 2: GST and Income Tax Liabilities are Unrelated
  Fact: GST assessments can impact Income Tax liabilities. Disallowed Input Tax Credits (ITC) under GST may lead to higher taxable income under Income Tax, resulting in additional tax liabilities. Similarly, GST-related non-compliance can trigger scrutiny from Income Tax authorities.
• Myth 3: Income Tax Deductions are Affected by GST
  Fact: GST impacts on Income Tax deductions are mainly related to ITC on business expenses. GST does not directly affect Income Tax deductions beyond the scope of ITC disallowances and their implications.

While GST and Income Tax are crucial components of India’s taxation system, they serve distinct purposes and operate differently. GST is a consumption-based indirect tax levied on the supply of goods and services, affecting businesses and consumers alike. Conversely, Income tax is a direct tax imposed on individuals and entities based on earnings.

Moreover, BUSY  GST Accounting Software  simplifies the management of GST and Income Tax for businesses. Its integrated platform allows seamless GST calculations, return filing, and reconciliation while facilitating income tax-related tasks such as TDS management and financial reporting. Try  BUSY’s free trial  now to learn more about the features!