Being a taxpayer in India, understanding the entire tax system first is crucial to file direct and indirect taxes. Income Tax Return filling (ITR) and Goods and Services Tax filling are two significant financial obligations for businesses and individuals.
While both the tax structures involve in reporting to the government about the financial information, they serve different purposes. This comprehensive guide will discuss the basic difference between ITR filling and GST filling, including their definition and types.
An Overview of ITR Filling
ITR or Income Tax Return filing refers to the process where individuals and entities share their financial income, including investments, earnings, and tax liabilities, with the tax authority. The authority calculates the tax return amount depending on the available deduction of the taxpayers and the income tax slab rates.
Then, the government uses the collected tax returns for paying public services such as education, healthcare, and the improvement of infrastructure. The taxpayers must submit their accurate financial data within the given time.
What Is GST Filling?
The Goods and Services Tax is the process of reporting and paying the Goods and Services Tax, which is a consumption tax that is levied on the supply of goods and services. It replaced several indirect taxes and simplified the overall tax structure. As of June, 2023, the beyond 114 crore returns have been filed after the implementation of GST.
Under the GST filing, businesses need to submit their purchases, sales, and tax liabilities to the government to ensure compliance with the GST laws. Also, it is a destination-based tax, which means the tax is collected at the time of consumption instead of the location of the production.
Types of the ITR Filling
The ITR or Income Tax Return filling comes in several types or forms, each catering to different categories of taxpayers. The basic types of ITR filling types are ITR-1, ITR-2, ITR-3, ITR-4, and ITR-5. People having pension or wage income must use the ITR-1 form. It is also for the salaried employees with income from salary, one house property, and others.
Individuals who report income from capital gains, overseas assets, and dividends use the ITR-2. On the other hand, the ITR-3, ITR-4, and ITR-5 are for entities with revenue sources and varying turnover.
Different Types of GST Filling
The GST or Goods and Services Tax involves different forms, including GSTR-1, GSTR-2A, GSTR-3B, GSTR-4, GSTR-5, GSTR-6, GSTR-7, GSTR-9, and GSTR-10. All these forms are designed to capture specific information about the tax liability and transactions of businesses. GSTR-1 is for reporting outward supplies, while GSTR-2A generates return lists of any inbound sales or purchases that the registered taxpayer made. The GSTR-3B is a monthly summary return.
Taxpayers should use the GSTR-4 and select the GST Composition Scheme. The non-resident registered taxpayers must file the GSTR-5 for GST and make supplies of goods in India. On the other hand, the GSTR-6 is for the ISDs or Input Service Distributors who disburse input tax credits to their units.
The taxpayers who need to deduct Tax Deducted at Source or TDS by GST fill out GSTR-7. Every registered taxpayer must fill out the GSTR-9 every year, which includes the summary of their sales and purchases for the previous financial year. Lastly, the GSTR-10 is for taxpayers who canceled GST registration.
Significant Differences Between ITR Filling and GST Filling
Now that it is clear what ITR and GST filling are, including their types, it is time to know the difference between them. They differ in several aspects, which will be discussed below. Now, let’s begin.
· Nature of Tax
The ITR filling mainly deals with the income tax, which is a direct tax that an individual or business gets on their income. Conversely, the GST filling is an indirect tax on the supply of Goods and services.
GST filling is compulsory for businesses with a GST registration that typically includes businesses with an annual turnover above a specified threshold. On the other hand, the ITR filling is necessary for all the entities and individuals with taxable income.
· Calculation Difference
There is a difference in the calculation of both GST and ITR filling. The calculation of GST depends on the combined value of the goods and services. But, the ITR is calculated on the net income of an individual after exemptions and deductions.
The frequency of both ITR and GST filling differs as well. The ITR filling is done annually, reporting the income for the financial year. According to a statistic, over 6.77 crore income tax returns were filed for the assessment year 2023-24 which is higher than the previous year. However, GST filling is more frequent than ITR with quarterly or monthly filling, depending on the turnover of the businesses.
The content of GST and ITR filling is different. The GST, or Goods and Services Tax, primarily concentrates on sales, purchases, and input tax credits. But, the Income Tax Rate involves disclosing several sources of income, exemptions, and deductions.
· Difference in Penalties
If the individuals fail to meet any of the filling requirements, they must give penalties. Sometimes, they may have to face legal consequences as well. Hence, it is crucial for every individual and business to meet their filing requirements promptly.
However, failure to meet GST requirements may result in interest charges, fines, penalties, and even jail for the tax evasion. The penalties for not meeting ITR filling requirements will lead to late filling extra charges of up to Rs.10,000, fines between 50% to 200% of the avoided tax amount, and interest on the unpaid taxes.
In summary, while both ITR and GST filling involve reporting financial information to the high authority or government, they serve different purposes and have different requirements. They differ in terms of frequency, information requirements, compliance complexity, etc. So, understanding the requirements and definition of both tax structures is crucial for all the entities and individuals to avoid tax penalties and ensure compliance with tax laws.
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