There has been a lot of confusion between an income tax and GST since the government introduced the new tax system. It is important to understand the crucial differences between ITR and GST filing.
Taxes are classified into two major categories, i.e., direct taxes, and indirect taxes. Direct tax is imposed on your income, while indirect taxes are levied on people buying goods and using services. The GST comes under an indirect tax, while the Income tax is a direct tax. Go through this article to better understand taxes, ITR filing, and GST return filing.
Direct and Indirect Tax
Taxes are imposed on the citizens and corporations of a country by the government every year. The government requires you to pay taxes every year. The collection of taxes is backed by the country’s laws and upheld by various organizations. Every country has a different system for taxing its citizens. The main reason for taxing people is to have enough money to improve the country’s condition.
Direct taxes are paid by the taxpayer and are non-transferable. They are paid directly by an individual to the government and are only paid after the taxpayer receives the income. On the other hand, indirect taxes are transferable, and the responsibility can be given to others. An indirect tax paid by the person recovers it through another person. It is ultimately the consumer that bears indirect taxes. The consumers pay them before it even reaches the taxpayers. The tax collection for indirect taxes is much easier than the collection of direct taxes. The GST (the goods and services tax) and VAT (the Value Added Tax) are indirect taxes, while income tax is a direct tax.
Some examples of direct tax
1. Income tax:
Imposed on individuals that fall under a particular tax bracket and paid directly to the government.
2. Corporate tax:
Imposed on companies and corporations by the government.
3. Estate duty:
Levied on an individual if they have inherited something.
4. Fringe benefits tax:
Imposed by the state government on an employer that gives fringe benefits to his employees.
5. Wealth tax:
Levied on an individual who owns the property.
6. Gift tax:
A person who has received a taxable gift has to pay gift tax to the government.
Some examples of indirect tax:
1. GST:
The GST registration portal is levied on goods purchased and services provided.
2. Sales tax:
Service tax is paid by shopkeepers but ultimately shifted to the consumers by levying charges on the goods.
3. Excise duty:
Paid by the manufacturer of the goods but eventually shifted to the wholesalers and retailers.
4. Entertainment tax:
Paid by the cinema owners but shifted to the consumers of media.
5. Custom duty:
Tax levied on goods imported from other nations. It is paid for by the consumers.
6. Service tax:
Paid by individuals that avail certain services such as a food bill in a restaurant.
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GST
GST was introduced in India by the government to eliminate all the cascading and complicated tax systems in place before, which made it difficult to collect taxes. The GST is levied on goods and services. Due to the introduction of GST, service tax, value-added tax, excise duty, etc., was made obsolete. It is an indirect tax imposed on the supply chain of certain goods and services.
Income tax
Income tax is exclusively paid by an individual who earns more than 2.5 lakhs per year. The IT Department predetermines the tax slabs and the tax they are required to pay. The highest amount of income tax an individual can pay is around 30% of their salary. It is mandatory to pay income tax, and the responsibility cannot be shifted to anyone else.
Major differences between Income tax and GST
| Income tax | GST |
| Income tax is imposed upon an individual and the income he made in a year. | As the name suggests, GST is the tax imposed on goods and services. |
| You are only required to pay income tax if your annual income is more than 2.5 lakhs. | You need to register for and pay GST if your annual turnover reaches more than 40 lakhs. |
| It is a direct tax collected by the government. | It is an indirect tax collected by the government. |
| The individual itself must pay income tax. If they earn more than 2.5 lakhs per year, they must pay income tax to the government directly as they can’t shift it to someone else. | GST is ultimately paid by the consumer even if they are not paying the government directly. The tax is shifted onto the consumer eventually. |
| The government has imposed income tax on a person’s annual salary, income from capital gain, house property, etc. | The government has imposed GST on buying goods and availing of services provided only. |
| Only the taxpayers themselves are supposed to pay the income tax to the government. | However, GST is paid by all country citizens as it has wide coverage. |
| You cannot transfer it to anyone else. | You can transfer GST to someone else. |
| It is a direct tax with only one stage. The income tax is directly proportional to the amount of money a person earns in a year. The higher their annual salary, the more income tax they must pay. | It is a multistage and comprehensive destination-based tax since it has replaced various indirect taxes such as additional customs duty, value-added duty, service duty, Central excise duty, etc. |
Types of the ITR Filing
Navigating the world of income tax returns can be confusing. To simplify the process, the Indian Income Tax Department has categorised taxpayers based on their income sources and provided specific forms for each category.
ITR Forms for Individuals
- ITR-1 (Sahaj): Designed for individuals with a straightforward income profile, ITR-1 is suitable if your total income doesn’t exceed ₹50 lakhs. This form is ideal for salaried individuals with income from rental property and other regular sources.
- ITR-2: For individuals with a more complex income structure, ITR-2 is the appropriate form. If you own multiple properties, have earned capital gains (from selling assets like shares or property), or have other investment-related income, you’ll need to use ITR-2.
- ITR-3: Business owners and professionals will find ITR-3 applicable. This form is for individuals with income from business, profession, or both. It also covers income from share trading or options trading.
- ITR-4 (Sugam): If you’re a small business owner or a professional with a turnover below specified limits and have opted for the presumptive taxation scheme, ITR-4 is the form for you. This simplified form reduces the compliance burden for eligible taxpayers.
ITR Forms for Other Entities
- ITR-5: Partnerships, Limited Liability Partnerships (LLPs), and other similar business entities use ITR-5 to file their income tax returns.
- ITR-6: Companies, whether public or private, file their income tax returns using ITR-6.
- ITR-7: Trusts, non-profit organisations, and other entities claiming tax exemptions under specific provisions use ITR-7.
Choosing the Right ITR Form:
Selecting the correct ITR form is crucial to avoid penalties and delays. If you’re unsure about which form to use, consider consulting a tax professional or using the income tax department’s online tools to determine the appropriate form based on your income sources.
Types of GST Filing
GSTR-1
GSTR-1 is a monthly or quarterly return that details all outward supplies of goods and services made by a business. It includes invoices, debit, and credit notes for sales transactions. Businesses with an annual turnover over Rs. 5 crore must file it monthly by the 11th, while those under the QRMP scheme file quarterly by the 13th.
GSTR-2A
GSTR-2A is a view-only return showing inward supplies received from GST-registered suppliers. This return helps buyers verify their Input Tax Credit (ITC). It auto-populates based on GSTR-1 data filed by suppliers. While it cannot be edited, it is useful for cross-checking against GSTR-2B for accurate ITC claims.
GSTR-2B
GSTR-2B is a static, monthly return providing a snapshot of ITC details from the previous month’s GSTR-1 filings. Available from the 12th of each month, it helps businesses assess eligible ITC and reconcile their accounts before filing GSTR-3B.
GSTR-3B
GSTR-3B is a monthly self-declaration return summarising outward supplies, input tax credit, tax liability, and taxes paid. Businesses must file it by the 20th of the following month (or quarterly if under the QRMP scheme). It requires reconciliation with GSTR-1 and GSTR-2B to ensure accuracy.
GSTR-4
GSTR-4 is the annual return for businesses opting for the composition scheme. It must be filed by April 30 of the following financial year. For the financial year 2019-20 and onwards, GSTR-4 has replaced GSTR-9A, simplifying reporting for composition taxpayers.
GSTR-5
GSTR-5 is filed monthly by non-resident foreign taxpayers conducting business in India. It includes details of all transactions and tax liabilities. The return is due by the 20th of each month, providing a comprehensive view of foreign transactions and taxes paid.
GSTR-5A
GSTR-5A is a monthly return for Online Information and Database Access or Retrieval (OIDAR) service providers. It summarises taxable supplies and tax payable. The filing deadline is the 20th of each month.
GSTR-6
GSTR-6 is a monthly return for Input Service Distributors (ISDs). It includes details of ITC received and distributed. ISDs must file it by the 13th of each month to track and distribute credits accurately.
GSTR-7
GSTR-7 is filed monthly by entities required to deduct Tax Deducted at Source (TDS). It reports TDS details, liabilities, and payments. The return is due by the 10th of each month.
GSTR-8
GSTR-8 is a monthly return for e-commerce operators collecting tax at source (TCS). It includes details of supplies and TCS collected. The return must be filed by the 10th of every month.
GSTR-9
GSTR-9 is the annual return for GST-registered taxpayers. It consolidates all monthly or quarterly returns (GSTR-1, GSTR-3B) and provides a comprehensive summary of supplies and tax details. It is due by December 31 of the following financial year.
GSTR-9A
GSTR-9A was previously required for composition taxpayers, consolidating quarterly returns. It has been replaced by GSTR-4 since FY 2019-20.
GSTR-9C
GSTR-9C is a reconciliation statement filed by taxpayers whose annual turnover exceeds Rs. 5 crore. It reconciles the financial statements with GSTR-9. The due date aligns with GSTR-9, December 31 of the following year.
GSTR-10
GSTR-10 is a final return filed by taxpayers whose GST registration has been cancelled. It must be filed within three months from the cancellation date or order.
GSTR-11
GSTR-11 is for persons with a Unique Identity Number (UIN), such as foreign diplomatic missions. It is used to claim refunds on taxes paid for goods and services in India.
Conclusion
The government has implemented several laws on its citizens that requires them to pay taxes in the right amount and at the right time. The major difference between income tax and GST is that income tax is a direct tax while GST: https://www.gst.gov.in/ is an indirect tax. Both types of taxes are crucial to the government to improve the country’s infrastructure and other purposes. Income tax is only paid if you are in a certain salary bracket, while everyone pays GST through purchasing goods and using services.
FAQs
Do both ITR and GST filing have deadlines?
Yes, both Income Tax Return (ITR) and GST filings have deadlines. ITRs must be filed annually by a specified date, typically July 31 for individuals or September 30 for businesses, though extensions may apply. GST returns have different deadlines depending on the type of return and the taxpayer's turnover, with monthly or quarterly deadlines.
Can ITR and GST returns be filed online?
Yes, both ITR and GST returns can be filed online. The Income Tax Department and GST Portal provide digital platforms for filing returns. Online filing simplifies the process, allowing for easy submission and tracking of returns.
What information is needed for ITR filing that is not required for GST filing?
ITR filing requires detailed personal income information, including salary, investments, and deductions. It also necessitates information on income from other sources, such as capital gains or rental income. GST filing, on the other hand, focuses on details related to sales, purchases, and tax credits.
Is there a penalty for late filing of both ITR and GST returns?
Yes, there are penalties for late filing of both ITR and GST returns. For ITRs, penalties can include late fees and interest on unpaid taxes. For GST, late fees and interest on unpaid taxes may be imposed, along with potential suspension of GST registration for repeated delays.
How does the audit requirement differ between ITR and GST?
ITR audits are required based on income thresholds and specific conditions, such as discrepancies in reported income or large transactions. GST audits focus on the accuracy of tax credits, compliance with regulations, and matching of sales and purchase data. The scope and criteria for audits in each area differ according to their respective laws and regulations.
