Difference Between GST and Income Tax: You Must Know
Introduction
Every taxpayer in India has asked this at some point: Why do I pay both GST and Income tax? Aren’t they the same thing? The truth is, while they sound similar, they work very differently. Let’s put it this way: Income tax is the tax you pay on the income you earn, and GST is the tax you pay on the money you spend. In short, Income tax – Income earned, and GST – Money spent. Just remember these, and you’ll be able to tell the difference just fine.
According to renowned physicist Albert Einstein, “The hardest thing in the world is to understand taxes”. Nevertheless, in this article, we ensure that you will explore GST vs Income Tax, what they are, how they differ, and why they matter.
What is TAX?
Tax is money that the government collects from people and businesses to run the country and provide public services like roads, schools, hospitals, and police. Just like how you pay rent to live in a house, citizens pay taxes to live in a country and use its facilities. The government takes a portion of your salary (income tax), adds extra cost to things you buy (like GST).
Now that we know what taxes are, let’s dive into the fascinating world of taxes! While paying taxes might not be anyone’s favorite activity, understanding the difference between GST and Income tax is crucial for every citizen and business owner. Taxes are essentially the price we pay for living in an organized society. But not all taxes are created equal, and the government has cleverly designed different ways to collect money from us depending on our income, spending habits, and business activities.
What is GST?
The Goods and Services Tax, better known as GST, is an indirect tax levied on the supply of goods and services. If you have ever noticed an extra charge on your bill at a restaurant or when shopping online, that’s GST.
Introduced in July 2017, GST replaced multiple indirect taxes like VAT, excise duty, and service tax. So, what is GST in simple terms? It is a tax you pay whenever you buy a product or service. The seller collects it from you and then deposits it with the government.
Let’s understand what is GST with an example:
Suppose you buy a phone worth ₹10,000 with 18% GST, your bill becomes ₹11,800. That ₹1,800 goes to the government. That’s the easiest way to understand what GST is – it’s linked to your spending.
What is Income Tax?
Now, let’s move to the other side: what is income tax? Unlike GST, which you pay when buying, income tax applies when you earn. Every salaried employee, freelancer, or business owner who earns above the exemption limit must pay income tax.
Let’s walk through how income tax works using an example you can easily relate to
Imagine you earn ₹7,00,000 in a year. After deductions, your taxable income is ₹5,00,000. Based on slabs, you pay tax on this amount. That is how what is income tax plays out in real life.
Filing your income tax return ensures transparency, while income tax e-filing makes the process quick and convenient.
GST vs Income Tax: Key Differences
People often confuse the two, but GST vs Income tax is like comparing apples and oranges.
| Aspect | GST (What is GST?) | Income Tax (What is Income Tax?) |
| Nature of Tax | Indirect tax on goods & services | Direct tax on income earned |
| Who Pays It | Ultimately, consumers | Individuals and businesses |
| Collected By | Collected by businesses | Paid directly to the government |
| When it’s paid | On every purchase or sale transaction | Once a year, during Income Tax return Filing |
| Process | Through GST invoices | Through income tax e-filing |
| Purpose of Use | Reduces tax fraud | Contributes to government funds |
| Calculation Basis | Percentage added to the product or service value | Percentage of total annual income after deductions |
| Impact on You | Affects the price of what you buy | Affects your take-home income after deductions |
| Rate of Structure | Multiple slabs (0%, 5%, 18% and 40%) depending on goods and services | Progressive slabs (5%, 10%, 20% and 30%) based on the income and age level |
| Compliance Frequency | Monthly or Quarterly GST return Filing | Annual income tax return filing |
| Evasion Penalty | Heavy fines for missing invoices or fake credits | Penalties, notices, and interests for non-response or evasion. |
Once you know how GST vs Income Tax are different, managing them isn’t as tricky anymore.
Why Knowing the Difference Matters?
- Whether you’re a student, a professional, or a small business owner, knowing the difference between GST and Income tax helps you plan your finances better.
- For businesses, what GST means is tracking invoices, filing returns, and staying compliant.
- For individuals, what income tax means is accurate reporting of earnings and timely income tax return filing.
- Digital tools now allow free income tax filing, making it simpler for beginners. Ignoring either side can mean penalties, stress, or even legal trouble.
Smart tools to simplify GST and Income Tax filing:
Managing both GST and Income tax can feel overwhelming, especially for small business owners. That’s where software solutions step in.
Vyapar’s GST billing software is designed to make life easier for small businesses. With it, you can quickly create GST-compliant invoices, keep track of payments, and even file returns without worrying about mistakes. If paperwork around GST and income tax feels overwhelming, this tool takes the stress out of handling the GST part
For everyday bookkeeping and expense tracking, Vyapar offers free accounting software for small businesses. It makes managing your accounts simple and ensures your records are organized and ready when it’s time to file your income tax return
With tools like these, staying compliant with both GST and Income tax becomes less of a headache.
Conclusion
To wrap up, the difference between GST and Income tax is clear once you look closely: GST is applied on what you spend, while Income tax is applied on what you earn. Both serve important but different roles in India’s economy.
Understanding what is GST and what is Income tax helps individuals and businesses stay compliant and plan better. And if you still find the compliance side difficult, digital solutions like Vyapar’s GST billing software and free accounting software for small businesses can take the load off your shoulders.
So next time someone asks you about GST vs Income tax, you’ll know exactly how to explain it and why both matter.
Frequently Asked Questions (FAQs)
- What is the main difference between GST and Income Tax?
The main difference between GST and Income Tax is when and how they are applied. GST (Goods and Services Tax) is an indirect tax charged when you buy goods or services, while Income Tax is a direct tax applied when you earn income. Simply put, GST is on spending, and Income Tax is on earnings.
- Who has to pay GST, and who has to pay Income Tax?
If you run a business or sell goods and services, you must register under GST and collect it from your customers. On the other hand, Income Tax is paid by individuals, freelancers, and businesses earning more than the basic exemption limit. So, every consumer indirectly pays GST, but only those who earn above a certain income threshold pay Income Tax.
- Can a person be liable to pay both GST and Income Tax?
Yes, absolutely. Many small business owners, shopkeepers, and freelancers pay both GST and Income Tax. For example, if you sell products or services, you collect GST on your sales, and when you file your Income Tax Return, you pay tax on the profits you made from those sales. These two taxes apply at different stages, one on your revenue, the other on your earnings.
- How is GST collected, and how is Income Tax collected?
GST is collected by the seller or service provider at the time of billing and later deposited with the government through GST returns. Income Tax, on the other hand, is collected directly from your income either through TDS (Tax Deducted at Source) by your employer or through self-assessment tax payments when filing your return.
- Is GST part of Income Tax?
No, GST is not part of Income Tax. They are two completely separate systems. GST comes under the Indirect Tax category, managed by both Central and State Governments, while Income Tax is a Direct Tax, managed solely by the Central Government through the Income Tax Department (CBDT).
