Learn the key differences between Income Tax and GST, their implications, and how businesses can stay tax-compliant under the 2025 New Tax Regime.

Income Tax vs. GST: Understanding the Key Differences in the Indian Tax System

Taxation plays a vital role in India's economy, with Income Tax and Goods and Services Tax (GST) being the two major types of levies. While Income Tax is a direct tax paid on earnings, GST is an indirect tax imposed on the supply of goods and services.

With the introduction of the 2025 New Tax Regime, taxpayers need to stay updated on revised tax slabs and compliance regulations. Whether you're an individual taxpayer or a business owner, knowing how these taxes function can help you plan finances better.

Let’s break down the key differences between Income Tax and GST and understand their implications.

What is Income Tax?

Income Tax is a direct tax imposed on individuals, businesses, and other entities based on their annual earnings. It is collected by the government and is used for public services, infrastructure, and welfare programs.

Types of Income Tax in India

Income Tax is categorized into:

1. Personal Income Tax – Paid by salaried employees and self-employed individuals.
2. Corporate Income Tax – Paid by companies on their annual profits.

Income Tax Slabs under the 2025 New Tax Regime

Under the 2025 New Tax Regime, the tax slabs have been revised to simplify the system and reduce exemptions. Here’s a look at the latest tax rates:

Taxpayers have the option to choose between the old tax regime (which includes exemptions like Section 80C, 80D, and HRA deductions) or the new tax regime, which offers lower tax rates with minimal exemptions.

What is GST (Goods and Services Tax)?

GST is an indirect tax that applies to the supply of goods and services at every stage of production and distribution. It was introduced in 2017 to replace multiple indirect taxes like VAT, excise duty, and service tax.

Types of GST in India

GST is categorized into:

1. CGST (Central GST) – Collected by the central government.
2. SGST (State GST) – Collected by state governments.
3. IGST (Integrated GST) – Applicable on inter-state transactions.

GST Registration and Compliance

Businesses must register for GST if their annual turnover exceeds ₹40 lakh (for goods) and ₹20 lakh (for services). GST compliance includes:

• Filing Monthly/Quarterly GST Returns (GSTR-1, GSTR-3B, GSTR-9)
• Claiming Input Tax Credit (ITC) on business purchases
• Maintaining accurate tax records

For expert guidance, businesses can consult a GST Consultant in Pune, ensuring they meet all compliance requirements and avoid penalties.

Key Differences Between Income Tax and GST

1.  Type of Tax

Income Tax is a direct tax levied on the income of individuals and businesses. It is paid directly to the government by taxpayers based on their annual earnings. On the other hand, GST is an indirect tax applied on the sale of goods and services. It is collected by businesses from consumers and then paid to the government.

2.  Applicability

Income Tax applies to individuals, salaried employees, professionals, and corporations, depending on their income levels. In contrast, GST applies only to businesses involved in the supply of goods and services, regardless of whether they make a profit or not. Consumers do not directly pay GST to the government but bear the cost when purchasing goods or services.

3.  Taxpayer Responsibility

In the case of Income Tax, the responsibility to pay lies with the individual or business earning the income. They must calculate, report, and pay tax based on applicable slabs or corporate tax rates. However, GST is collected by businesses from customers at the time of sale and then remitted to the government. Businesses act as intermediaries in the GST system.

4.  Collection Frequency

Income Tax is typically collected annually, though advance tax payments may be required quarterly for businesses and professionals. Meanwhile, GST is collected at every transaction stage and must be filed monthly or quarterly by businesses, depending on their turnover.

5.  Exemptions and Deductions

Income Tax under the old tax regime provides multiple deductions, such as those under Sections 80C (investments in PPF, LIC, ELSS), 80D (health insurance), and HRA (house rent allowance). The new tax regime offers lower tax rates with minimal exemptions. GST, on the other hand, allows businesses to claim Input Tax Credit (ITC), which helps reduce their overall tax liability by deducting the tax already paid on business purchases.

6.  Impact on Businesses and Individuals

For businesses, GST compliance directly affects pricing and operational costs. They must ensure proper GST registration, invoicing, and return filing to claim Input Tax Credit and avoid penalties. In contrast, Income Tax impacts profitability, as businesses must plan their finances effectively to minimize tax liabilities. For individuals, Income Tax reduces their take-home salary through TDS (Tax Deducted at Source), while GST indirectly influences their cost of living by increasing the price of goods and services.

7.  Tax Filing and Compliance Process

The process of filing Income Tax Returns (ITR) is done annually, and individuals/businesses must declare their income, investments, and deductions. Corporate taxpayers and professionals also need to pay advance tax quarterly. On the other hand, GST returns must be filed monthly or quarterly, depending on turnover. Non-compliance with GST regulations can result in penalties, fines, and cancellation of GST registration.

8.  Government Revenue Distribution

Income Tax is collected by the central government and is used for national development, infrastructure, and welfare schemes. A portion of it is also distributed to states. In contrast, GST is shared between the central and state governments, with CGST going to the centre and SGST going to individual states, ensuring a more balanced revenue distribution across the country.

Final Thoughts

Understanding the difference between Income Tax and GST is essential for making informed financial decisions. While Income Tax is a direct tax on earnings, GST is an indirect tax on goods & services.

Staying compliant under the 2025 New Tax Regime requires proper tax planning. Whether you are a salaried individual, freelancer, or business owner, being aware of your tax obligations can help you save money and avoid penalties.

For expert guidance on Income Tax and GST, or if you have any doubts regarding these topics, you can contact CA Pratik S Kothari.