Person in Indian Income Tax Act, 1961

21/05/2024 0 By indiafreenotes

The term “Person” under the Indian Income Tax Act, 1961, is a fundamental concept that dictates who is liable to pay income tax in India. The definition of “person” is comprehensive, ensuring that all possible entities generating income are covered under the tax ambit.

  1. Legal Definition

According to Section 2(31) of the Income Tax Act, 1961, the term “person” are:

  1. An individual
  2. A Hindu Undivided Family (HUF)
  3. A company
  4. A firm
  5. An Association of Persons (AOP) or a Body of Individuals (BOI), whether incorporated or not
  6. A local authority
  7. Every artificial juridical person not falling within any of the preceding categories

This inclusive definition ensures that various entities, ranging from individuals to corporations, fall under the tax net.

Categories of Persons

  1. Individual:

Refers to a single human being. Includes both resident and non-resident individuals. Tax liability is based on the individual’s income slab rates, which are progressive.

  1. Hindu Undivided Family (HUF):

A unique entity under Hindu law, comprising individuals who are lineal descendants of a common ancestor. Includes male members (coparceners) and female members (wives and daughters). Managed by the “Karta” (head of the family). Taxed separately from the individual members.

  1. Company:

Includes domestic and foreign companies. A domestic company is one incorporated in India, while a foreign company is incorporated outside India but with business operations in India. Taxed on global income (for domestic companies) or income earned within India (for foreign companies).

  1. Firm:

Includes partnerships and Limited Liability Partnerships (LLPs). Partnership firms and LLPs are treated as separate entities for taxation purposes. Partners are taxed on their share of the firm’s income.

  1. Association of Persons (AOP) or Body of Individuals (BOI):

An AOP is formed when two or more persons voluntarily come together for a common purpose, not necessarily to earn income. BOI consists of individuals who join for a common purpose, typically non-commercial. Taxed as a single entity or individually, depending on the structure.

  1. Local Authority:

Includes municipal bodies, panchayats, and other local governance entities. Engages in activities such as water supply, sewage management, and local administration. Taxed based on the income generated from their functions.

  1. Artificial Juridical Person:

Entities created by law, not fitting into the other categories. Includes trusts, deities, or any institution created by a statute. Recognized as separate taxable entities.

Tax Implications for Different Persons

  • Individuals:

Progressive tax rates based on income slabs. Various deductions and exemptions are available (e.g., Section 80C for investments, Section 80D for medical insurance).

  • HUFs:

Taxed at individual rates. Entitled to deductions similar to individuals. Income divided among members is not taxed again in their hands.

  • Companies:

Corporate tax rates are applicable. Domestic companies benefit from tax incentives on certain income. Minimum Alternate Tax (MAT) and Dividend Distribution Tax (DDT) are applicable.

  • Firms:

Flat tax rate on firm’s income. No tax on share of profit received by partners. Deduction for remuneration to partners, subject to conditions.

  • AOPs/BOIs:

Taxed at the maximum marginal rate if income is not attributable to any one member  If shares are determinate, income taxed in the hands of members.

  • Local Authorities:

Income from property held under trust is exempt. Other income subject to tax as per applicable rates.

  • Artificial Juridical Persons:

Taxed like any other entity, based on the nature and scope of income. Subject to special provisions under the Income Tax Act.

Compliance and Filing Requirements

  • Individuals:

Required to file income tax returns annually, typically by July 31st.

  • HUFs:

The Karta files the tax return on behalf of the HUF.

  • Companies:

File returns by September 30th (audit required) or November 30th (international transactions).

  • Firms:

Required to file returns, with audit requirements for firms exceeding specified turnover.

  • AOPs/BOIs:

File returns based on the structure and nature of income.

  • Local Authorities and Artificial Juridical Persons:

Filing based on the income generated and specific provisions.