How GST Affects Your Income Tax Filing
- Posted By SuperCA
- On 03 March
About
Goods and Services Tax (GST) is a comprehensive indirect tax that was introduced in India on 1st July 2017. It has replaced multiple taxes levied by the central and state governments. GST is a destination-based tax that is levied on the supply of goods and services. It has impacted almost all the sectors of the Indian economy and has brought about a significant change in the tax regime. GST and Income tax are two different taxes levied by the government of India. GST is a consumption-based tax that is levied on the supply of goods and services, while Income tax is a direct tax that is levied on the income of individuals and companies. Both taxes have their own rules and regulations, and the taxpayers need to comply with them separately. In this blog, we will discuss how GST affects your income tax filing.
Difference between GST and Income Tax
| Parameter | GST | Income Tax |
| Nature of Taxation | GST is an indirect tax which is levied on the supply of goods and services. | Income tax is a direct tax that is levied on the income earned by individuals, companies, and other entities. |
| Scope | GST is levied on the sale of goods and services throughout the supply chain, from manufacturing to the final consumer. | Income tax is levied on the income earned by an individual or entity. |
| Collection | GST is collected by businesses on behalf of the government and is remitted to the government periodically. | Income tax is directly paid by the individual or entity to the government. |
| Applicability | GST is mandatory to get registered under GST if the turnover exceeds the threshold limit of Rs 40 lakhs for trading and manufacturing or 20 lakhs for service industry (Rs 10 lakhs for special category states | Income tax is applicable to all individuals, companies, and other entities that earn income exceeding the prescribed limit. |
| Calculation | The rate of GST is fixed by the government, and the tax liability is calculated on the value of the goods or services supplied. | The rate of income tax is calculated based on the income earned by the individual or entity, and the tax liability is calculated based on the tax slab rates applicable. |
Impact of GST on Income Tax Filing:
➢ GST Registration:
If you are a business owner who is registered under GST, then you need to provide your GST registration number while filing your income tax return. This is because GST registration is mandatory for businesses whose turnover exceeds Rs. 20 lakhs (Rs. 10 lakhs for northeastern and hill states).
➢ Input Tax Credit (ITC):
Under GST, businesses are eligible to claim Input Tax Credit (ITC) on the taxes paid on the purchase of goods and services used for business purposes. This ITC can be claimed against the output GST liability. This has reduced the cost of goods and services for businesses, and they can pass on the benefits to the end customers.
ITC has also impacted income tax filing as it needs to be reconciled with the books of accounts. The ITC claimed under GST needs to be matched with the purchase invoices and reported in the GSTR-2A form. This information needs to be reported accurately in the income tax return to avoid any discrepancies.
➢ Changes in Tax Rates:
GST has brought about a significant change in the tax rates of goods and services. Some goods and services have become cheaper, while others have become expensive. This has impacted the cost of doing business and the tax liability of businesses. As a result, businesses need to adjust their prices and tax liability accordingly.
The changes in tax rates have also impacted the income tax filing of individuals and businesses. They need to report the correct tax liability as per the applicable tax rates. Any errors or discrepancies in reporting the tax liability can attract penalties and fines.
➢ Increased Compliance:
GST has increased compliance requirements for businesses. They need to file multiple returns and maintain proper records of transactions. This has increased the burden of compliance on businesses, and they need to invest more time and resources to comply with the GST regulations.
This increased compliance has also impacted the income tax filing of businesses. They need to maintain proper records of transactions and report them accurately in the income tax return. Any errors or discrepancies in reporting the transactions can attract penalties and fines.
➢ Increased Scrutiny:
GST has increased the scrutiny of businesses by tax authorities. They can track the transactions of businesses and verify them with the GST returns filed. This has increased the accountability of businesses, and they need to ensure that their transactions are accurate and compliant with the GST regulations. This increased scrutiny has also impacted the income tax filing of businesses. They need to ensure that their income tax return is accurate and compliant with the Income Tax regulations. Any errors or discrepancies in reporting the income can attract penalties and fines.
ITR Filing for AY 2023-24: Hassle-free Expert Assistance
Conclusion:
GST has brought about a significant change in the tax regime of India. It has impacted almost all the sectors of the Indian economy and has brought about new compliance requirements for businesses. It has also impacted income tax filing in India, as businesses need to ensure that their GST registration number, ITC, tax rates, compliance, and scrutiny are accurately reported in the income tax return. Any errors or discrepancies in reporting can lead to penalties and fines.
Therefore, it is essential for taxpayers to understand the impact of GST on their income tax filing and comply with the regulations to avoid any penalties and fines. They should maintain proper records of transactions, reconcile the ITC, and report accurate tax liability as per the applicable tax rates. Furthermore, the government of India has introduced several measures to simplify the GST and Income Tax filing process. As a responsible citizen, it is essential to understand the impact of GST on income tax filing and comply with the regulations to contribute to the growth of the Indian economy.
