When we talk about paying taxes, most people think only of salaried individuals. However, the Indian Income Tax Act defines tax liability not just for people, but for several different legal entities. These entities are grouped into categories, and each one has its own specific set of tax rules, forms, and filing deadlines.
Here are the five main types of taxpayers recognised by the Income Tax Department:
1. Individual
This is the most common category, covering any living human being.
- Who it Includes: Salaried employees, self-employed professionals, freelancers, retirees, and students who earn an income.
- Key Feature: Tax liability here is based on your age (normal citizen, senior citizen, super senior citizen) and residency status (Resident or Non-Resident). Different tax slabs (rates) apply based on your total income.
2. Hindu Undivided Family
A unique entity under Indian law, the HUF is a family unit that owns ancestral or common property.
- Who it Includes: A family consisting of members who are descended from a common ancestor. It is managed by the senior-most male member, known as the Karta.
- Key Feature: An HUF is treated as a separate taxpayer from its individual members. It can have its own PAN card and file its own tax returns on its joint income (like income from shared property or investments).
3. Company
This includes all businesses that are formally registered under the Companies Act, whether they are listed on the stock exchange or privately held.
- Who it Includes: Both domestic companies (companies registered in India) and foreign companies (those registered outside India but earning income here).
- Key Feature: Unlike individuals, companies pay a flat rate of corporate tax on their profits, subject to various rates based on turnover size and registration status.
4. Firm
This category covers partnerships and Limited Liability Partnerships (LLPs) which are common ways for two or more professionals to run a business together.
- Who it Includes: Partnership firms where two or more partners agree to share profits and losses, and LLPs.
- Key Feature: The Firm itself is assessed for tax separately. The profits are taxed at the firm level, and the individual partners are usually not taxed again when they receive their share of the firm's profits.
5. Association of Persons (AOP) or Body of Individuals (BOI)
This category covers groups formed temporarily for a specific purpose without being formally registered as a company or firm.
- Who it Includes: Groups that come together for a common project, like joint venture partners on a real estate project, or legal trustees managing a property.
- Key Feature: An AOP/BOI files taxes as a single entity on the combined income generated from their shared activity. Once the tax is paid at the AOP/BOI level, the members are generally not taxed again on their received share of that income.