Acharya Prashant explains that religion, as commonly practiced, is outward-looking and focused on rituals, traditions, and external beliefs. It relies on looking at the past, scriptures, and gurus without examining the self. In contrast, spirituality is the center of religion but remains distinct because it focuses inward. It begins with the fundamental question of who the observer is, prioritizing the investigation of the 'I' over external objects. While religion is concerned with the 'towel' (the object), spirituality is concerned with testing the 'eyes' (the observer).