Income Tax: Person

“Person” is defined broadly to include various entities and individuals who are subject to tax. This comprehensive definition is crucial for identifying taxpayers and ensuring that all forms of income are appropriately taxed. The term “person” is defined under Section 2(31) of the Income Tax Act, 1961.

Categories of Person

The Income Tax Act recognizes several categories of persons, each subject to specific tax rules and regulations. These categories include:

1. Individual
2. Hindu Undivided Family (HUF)
3. Company
4. Firm
5. Association of Persons (AOP) or Body of Individuals (BOI)
6. Local Authority
7. Artificial Juridical Person

1. Individual

An individual refers to a single human being, whether a resident or non-resident, earning income. This category is the most common and encompasses salaried employees, self-employed professionals, freelancers, and other single persons with taxable income.

• Taxation

Individuals are taxed based on progressive tax slabs that vary according to their income levels. The tax slabs are periodically revised in the Union Budget. Individuals can claim deductions under various sections of the Income Tax Act, such as 80C, 80D, 80E, etc., to reduce their taxable income.

2. Hindu Undivided Family (HUF)

HUF is a distinct legal entity consisting of individuals descended from a common ancestor, including their wives and unmarried daughters. It is governed by Hindu law and is recognized as a separate entity for taxation purposes.

• Taxation

The income of an HUF is taxed separately from the individual members. It can claim deductions and exemptions similar to those available to individuals. The head of the HUF, known as the Karta, is responsible for managing its affairs and filing tax returns.

3. Company

A company refers to an artificial legal person created under the Companies Act, 2013, or any other applicable legislation. It includes both Indian companies and foreign companies operating in India.

• Taxation

Companies are taxed at a flat rate on their profits. Indian companies are subject to corporate tax rates, which can vary based on turnover and other factors. Foreign companies are taxed differently, considering their nature of income and the presence of permanent establishments in India.

4. Firm

A firm is an entity formed by a partnership agreement between two or more persons to conduct business. It includes both registered firms and unregistered partnerships recognized under the Partnership Act, 1932.

• Taxation

Firms are taxed at a flat rate on their income. The partnership firm itself is taxed, and the partners are exempt from tax on the share of profits received from the firm, as it is considered exempt income in their hands.

5. Association of Persons (AOP) or Body of Individuals (BOI)

AOP refers to a group of individuals who come together to achieve a common objective, often for earning income. BOI refers to a collection of individuals who receive income jointly. Both entities are not necessarily bound by a formal agreement.

• Taxation

AOPs and BOIs are taxed as separate entities. The tax rates and deductions applicable to them can vary based on specific conditions, such as whether the shares of the members are determinate or indeterminate.

6. Local Authority

Local authorities refer to administrative bodies governing specific local areas, such as municipalities, district boards, and panchayats. They are involved in local governance and administration.

• Taxation

Local authorities are generally exempt from income tax on income derived from the supply of goods and services for public welfare. However, other forms of income may be subject to taxation.

7. Artificial Juridical Person

This category includes entities not covered under the previous categories but recognized by law as having a distinct legal identity. Examples include deities, religious institutions, and other non-human entities granted legal personhood.

• Taxation

Artificial juridical persons are taxed similarly to individuals or other entities, depending on the nature of their income and activities. The specific tax treatment can vary based on their legal recognition and purpose.