Normally a ‘Person’ refers to an ‘Individual’, however under Income Tax, the person has broader meaning and coverage.
The Income Tax Act of 1961 is an important legislation that governs the taxation of individuals and entities in India. Section 2(31) of the Act defines the term ‘person’, which is crucial to understanding the various provisions of the Act. In this article, we will explore the definition of a person under the Income Tax Act, the different types of persons recognized by the Act, and how taxation works for each type of person.
For the purpose of charging Income-tax, the term ‘person’ has been defined under Section 2(31) of the Income Tax Act, 1961 to include Individuals, Hindu Undivided Families [HUFs], Association of Persons [AOPs], Body of individuals [BOIs], Firms, LLPs, Companies, Local authority and any Artificial Juridical Person (AJP).
As per Section 2(31) of Income Tax Act, 1961, unless the context otherwise requires, the term “person” includes:
(i) an individual,
(ii) a Hindu undivided family,
(v) an association of persons or a body of individuals, whether incorporated or not,
(vi) a local authority, and
(vii) every artificial juridical person, not falling within any of the preceding sub-clauses.
Explanation: For the purposes of this clause, an association of persons or a body of individuals or a local authority or an artificial juridical person shall be deemed to be a person, whether or not such person or body or authority or juridical person was formed or established or incorporated with the object of deriving income, profits or gains.
An individual is a natural person who is a citizen of India or a resident of India. Under the Income Tax Act, an individual is taxed on his or her income. The income tax rates for individuals vary depending on their income level.
An HUF is a type of family arrangement that is recognized under Hindu law. An HUF consists of all persons lineally descended from a common ancestor, including their wives and unmarried daughters. Under the Income Tax Act, an HUF is taxed as a separate entity from its members.
A company is a separate legal entity that is registered under the Companies Act, 2013. Companies are taxed on their income at a flat rate.
A firm is an association of two or more individuals who come together to carry on a business. Under the Income Tax Act, a firm is taxed as a separate entity from its partners.
An AOP is a group of two or more persons who come together for a common purpose, other than for profit. An AOP is taxed as a separate entity from its members.
A BOI is a group of two or more individuals who come together for a common purpose, other than for profit. A BOI is taxed as a separate entity from its members.
An artificial juridical person is a legal entity that is not a natural person. These entities are taxed on their income at the same rates as individuals.
The “assessee” under the Income Tax Act, 1961 is a person by whom any tax/ other dues are payable under the Act, i.e. income-tax is to be paid by a ‘person’. Therefore deciding the ‘type of person’ under the Income Tax Act is all the more important, as there are different set of tax rules/ rates which are applicable to respective category. The term ‘person’ as defined under the Income-tax Act covers in its ambit natural as well as artificial persons, i.e. apart from a natural person/ individual, any sort of artificial entity will also be liable to pay Income-tax, as explained above.
In conclusion, the Income Tax Act of 1961 defines the term ‘person’ as a broad category that encompasses a wide range of entities. The Act recognizes various types of persons, including individuals, HUFs, companies, firms, AOPs, BOIs, and artificial juridical persons, each with their own tax obligations and rates.
What is the meaning of ‘an individual’ and ‘every artificial juridical person, not falling within any of the preceding sub-clauses’? Can you tell me who and all fall in these categories?
Ashwani MehtaIndividual is a unit of assessment covered under definition of person as per Income Tax Act and it refers to a natural person, i.e. a human being (male or female). Same way each class of persons has its own scope of coverage under Income Tax Act. Artificial Juridical Person is basically a residuary class and it may cover assessees which are not covered in any of the other specified classes of person. For example, a co-operative society may be treated as an AJP.
