Difference Between GST and Income Tax

What is GST?

The GST (goods and services tax) is a tax on goods and services sold for domestic consumption. Generally, GST is paid by consumers included in the final price, but it is forwarded to the government by the business selling services. So, it is an indirect tax paid to the government. GST is mandatory if the turnover is more than 20 lakhs per year.

In 1954, France was the first to implement GST. Today, more than 140 countries have implemented the GST. Canada, Vietnam, Australia, Singapore, the United Kingdom, Spain, Italy, Nigeria, brazil, and India are some countries with GST included. For example, if a chocolate’s price is 10$, and GST is 5%, then chocolate would cost 10.05$.

The GST is a multi-stage taxation system because it is imposed on every step of a production system but paid for by the final customer who buys a product. So, the burden of tax is shifted from one person to another. The GST is calculated by multiplying the price of a product or a service by the GST tax rate. Governments prefer GST because tax avoidance is reduced, and the taxation system is simplified.

What is Income Tax?

An income tax is a tax that the government imposes on income produced by businesses and individuals within their jurisdiction. It is also imposed on an individual’s daily wages, salaries, or other types of income. After collecting income tax, it is used for government obligations, fund public services, and help citizens by providing goods.

Great Britain introduced income tax in 1800. Firstly, income tax was imposed by the United States on a nation in 1862 to help out finance the civil war. Then later, the tax was canceled, but after the passage of the profit act of 1913, it was reinstated. Some countries have no income tax: Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming.

The US has a progressive income tax, which means a person whose income is higher than he will pay higher taxes, and with a lower income will pay lower taxes. But most people do not pay. Income tax is calculated by adding all sources of taxable income earned in the tax year and then calculating your AGI (Adjusted gross income).

Difference Between GST and Income Tax

  1. GST is imposed on the consumption of goods and services, whereas income tax is imposed on the income made by an individual in a particular year.
  2.  France was the first who has implemented GST, whereas Great Britain was the first who introduce income tax.
  3. GST is mandatory when a business’s annual turnover is more than 20 lakhs, whereas Income tax is imposed when individual annual pay is more than 2.5 lakh.
  4. GST was introduced by France, whereas Great Britain introduced income tax.
  5. GST is indirectly paid to the government, whereas income tax is indirectly paid to the government.

Comparison Between GST and Income Tax

Parameters of ComparisonGSTIncome Tax
CountryFranceGreat Britain
Implemented In  19541800
Applicable WhenWhen Annual Turnover Exceeds 20 lakhsWhen Annual Income Exceeds 2.5 lakhs
Tax TypeIndirect TaxDirect Tax
Imposed OnImposed on Consumptions of Goods and ServicesImposed on an Individual’s Salary

References

  1. https://www.researchgate.net/profile/Anand-Nayyar/publication/323007997_A_Comprehensive_Analysis_of_Goods_and_Services_Tax_GST_in_India/links/5b8a6bcf4585151fd140c393/A-Comprehensive-Analysis-of-Goods-and-Services-Tax-GST-in-India.pdf
  2. https://www.journals.uchicago.edu/doi/abs/10.1086/256742