GST vs. Income Tax: The Reform India Missed

When the Goods and Services Tax (GST) was rolled out, it was hailed as India’s most ambitious tax reform—one nation, one tax, one market. Over time, the GST Council has spent countless hours framing next-generation reforms: rate rationalisation, compliance tweaks, e-invoicing, and faceless scrutiny. Each step is aimed at plugging loopholes and widening the tax net.

But amid this relentless tinkering, a larger question has gone unasked: why do we still carry the burden of dual taxation—GST and income tax—on the same economic activity?

The Tax Chain in Action

Take a simple supply chain.

A manufacturer produces a product for ₹5 (all costs included) and sells it to a stockist for ₹7.

The stockist sells it to a retailer for ₹9.

The retailer sells it to the consumer for ₹11.

Each makes a profit of ₹2. The combined profit in the chain is ₹6. At 30% income tax, the government would collect ₹1.80—provided every transaction is disclosed. If one player hides the deal or shifts to cash, the government loses.

This was precisely the loophole GST was designed to close. With input tax credit dependent on invoices, every buyer demands compliance from the seller. GST has ensured visibility across the chain. Even cash transactions are hard to disguise without hurting the next party.

The Overlap Nobody Talks About

If GST already ensures traceability and locks in the government’s revenue, why is income tax still layered on top of it?

The same profit that is visible and indirectly taxed through GST is again subjected to direct tax. The outcome is dual taxation. The irony: the government’s energy goes into fine-tuning GST reforms, while the elephant in the room—this overlap—remains untouched.

The Missed Reform

Imagine if, instead of spending years calibrating GST slabs and compliance rules, policymakers had asked: Can income tax be rationalised or phased out for those already within the GST chain?

Such a move would have:

Simplified compliance for businesses drowning in paperwork.

Reduced incentives for under-reporting and tax avoidance.

Strengthened trust between citizens and the state.

Kept revenue robust—because GST already tracks the economic activity at its source.

This would have been the real next-generation reform—one that lightens the load on honest taxpayers while safeguarding the exchequer.

A Call for Rethinking

The debate is overdue. The government has succeeded in tightening the noose on indirect taxes. But it has missed the opportunity to question whether two parallel tax systems are necessary in today’s digital, GST-driven economy.

India doesn’t need more complexity. It needs clarity. Perhaps the time has come to ask whether GST and income tax should coexist in their current form—or whether true reform lies in choosing one as the backbone of public finance.