Understanding the Various Types of Income Tax Taxpayers in India

Introduction

Income tax is a crucial aspect of the Indian tax system. It is absolutely mandatory for every individual, whether resident or non-resident, to file income tax returns. The Income Tax Act has categorized taxpayers into different groups, each with its unique set of rules and regulations. In this article, we will delve into the various types of taxes in India, direct and indirect tax, and the types of Income Tax Taxpayers for filing income tax returns. We will explain their classification, and the tax rules that apply to each category.

Classification of Taxpayers

The Income Tax Act has categorized the various taxpayers that fall under different types of taxes in India into the following groups:

1. Individuals: This includes all individuals who earn an income in India. Such as those who are self-employed, salaried, or have other sources of income.
2. Hindu Undivided Family (HUF): A HUF is a family governed by Hindu law. This ncludes all the members of the family, including the husband, wife, and children.
3. Firms: This includes all types of firms, including partnership firms, limited liability partnerships, and private limited companies.
4. Companies: This includes all types of companies, including public limited companies, private limited companies, and limited liability companies.
5. Association of Persons (AOP): An AOP is a group of individuals who come together to achieve a common objective. Such as a club, society, or association.
6. Body of Individuals (BOI): A group of individuals united by a common purpose or interest are called a BOI. Such as a group of professionals or a group of individuals with a shared hobby.
7. Local Authority: This includes all local authorities, such as municipalities, panchayats, and zilla parishads.
8. Artificial Judicial Person: This includes all artificial judicial persons, such as trusts, charitable institutions, and religious institutions.

Classification of Individuals and HUFs

Individuals and HUFs are further classified into two categories. They relate to two different types of taxes in India: residents and non-residents. When it comes to Annual Return for Regular Taxpayers, a resident individual is liable to pay tax on their global income in India. This includes income earned in India and abroad. On the other hand, a non-resident individual must only pay taxes on income earned or accrued in India. One has to determine the residential status of an individual or HUF separately for tax purposes for every financial year based on the individual tenure of stay in India.

Classification of Individuals Based on Age

Types of Income Tax Taxpayers are further classified into three categories based on their age to identify the applicable types of taxes in India for them:

1. Individuals less than 60 years of age: This includes all individuals who are below the age of 60.
2. Individuals aged more than 60 but less than 80 years: This includes all individuals who are between the ages of 60 and 80.
3. Individuals aged 80 years or more: This includes all individuals who are 80 years or older.

Heads of Income

The Income Tax Department breaks down income into five main heads for Income Tax Slabs for simpler classification for the various types of taxes in India:

1. Income from Other Sources: This includes income from savings bank account interest, fixed deposits, and winning in lotteries.
2. Income from House Property: This includes income earned from renting a house property.
3. Income from Capital Gains: This includes surplus income from the sale of a capital asset. This includes all capital gain types, such as mutual funds, shares, house property, etc.
4. Income from Business and Profession: This includes profits earned by self-employed individuals, businesses, freelancers or contractors. Also includes income earned by professionals like life insurance agents, chartered accountants, doctors, and lawyers who have their own practice, and tuition teachers.
5. Income from Salary: This includes income earned from salary and pension. This includes both, direct and indirect tax, that is income tax, TDS, etc.

Tax Slabs and Tax Rates

Each of these taxpayers are differently taxed on different Income Tax Slabs on the different types of taxes in India. Most firms and Indian companies have a fixed rate of tax calculated on taxable income. On the other hand, taxation for individual, HUF, AOP, and BOI taxpayers is based on the income slab they fall under. People’s income is grouped into blocks, which are called tax brackets or tax slabs. Each tax slab has a different tax rate. The rate at which the tax is charged increases as the taxable income increases. Under the old regime (excluding rebate provisions) individuals with an income from Rs 2.5 Lakhs to 5 lakh are taxed at a rate of 5%.

Conclusion

Understanding the various types of taxes in India is crucial for individuals and businesses to comply with the tax laws and regulations. By knowing the different categories of taxpayers and the tax rules that apply to each category, individuals and businesses can enjoy the many benefits for taxpayers. They can ensure that they know which tax they have to pay from the various types of taxes in India. They can be compliant with all the relevant deadlines.

It is natural to get confused, when there are so many different types of taxpayers and taxes. it could be taxes based on capital gain types or salary, or what not! Unfortunately, making errors when it comes to filing income tax return can lead to hefty fines and even legal action! That is why, it is very important to consult experts, such as our tax professionals at LegalWiz.in. Familiarise yourself with all the types of income tax and taxpayers in India, and give yourself the tools to be tax compliant today.