Does Paying Income Tax Grant Relief from Goods and Service Tax?
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GST came into effect from 1st July 2017 and replaced several existing indirect taxes collected by the State and Central Government. Income Tax is a direct tax paid by salaried and self-employed individuals based on their income earned in a financial year.
Income Tax and GST are mutually inclusive; which means filing IT does not grant relief from Goods and Services Tax. They are categorised differently, and both IT and GST advantages and disadvantages are different in nature. Income Tax and GST are different in their implementation as GST is collected on consumption where Income Tax is levied on the income and revenues earned.
What is GST?
The Goods and Services Tax is a duty imposed on products and facilities that are made and sold for consumption within Indian jurisdiction. A trader pays GST on every stage of a supply cycle; however, the GST Council has implemented an Input Tax Credit system to minimise duplicate payments on the same supply.
There are several GST advantages and disadvantages. For example, the entire tax bracket is divided into five slabs, 0%, 5%, 12%, 18%, and 28%, and the tax collected is equally divided between the State and Central Government. However, GST also taxes some essential goods like sanitary napkins, walking sticks, wheelchairs, hearing aids, etc. These are amongst the top advantages and disadvantages of GST in India.
What is the Income Tax?
Income Tax is duty levied on individuals who work at a company or own a business. It is based on a taxpayer’s earnings or profits made within a financial year. Non-Resident Indians are also liable to pay Income Tax if they work or run a business on Indian soil.
Like the GST rate, IT also has different slabs depending on an individual’s income. A person will not have to pay any taxes if their annual income is below Rs. 2,50,000. Individuals with annual incomes above that threshold will be liable to pay 5% of the total income. The same rate will apply to people earning a maximum of Rs. 5,00,000 a year. The latest interim budget proposes to increase the limit to Rs. 5,00,000 from Rs. 2,50,000.
Both IT and GST are well-structured schemes that ultimately benefit the taxpayers. A simplified tax structure is one of the largest GST benefits. Also, it does not affect the lending market which is essential to finance businesses and individuals across the country.
Because of the negligible changes, leading financial institutions such as Bajaj Finserv can still add various features and benefits with their financial products.
GST and income tax operate on two different nodes of taxation. GST is poised to build a stronger taxation system which will also improve the existing Income Tax architecture.
Additional Read: How to File GST