Understanding Income Tax in India Part II

Aayush Kedia

Types of Assessees

In order to pay Income Tax one needs to have PAN number, however, in order to obtain that PAN number, there is a very important question that one needs to answer. That is the “Type of Assessee”. As we now know that an Assessee is someone who pays tax, we also need to know the different types of assessee’s that are there. For the same, we look at Section 2(31) of the Income Tax Act of 1961. Sec2(31) defines who a person is under the Income Tax jargons. There are 6 types of persons accepted by the Income Tax Act, which are as follows:

  1. Individual– means any individual who wants to file tax returns on his own name. An individual acquires the right to file returns in their own name, after they have attained the age of legal majority, i.e. 18 years. In the case, a minor, i.e below the age of 18 has any income, then their income gets clubbed with that of their parents under Section 64 of the Income Tax Act. Parents in this case, get a certain amount of deduction they get under Section 10 
  2. Hindu Undivided Family– a concept under Hindu law, where an entire family comes together and conducts business jointly. Hence, since they are doing business because of the virtue of jointness, they are given some special relief, other than the others, however they are similar to an individual
  3. Company– A company is one registered under Section 2() of the Companies Act of 2013 in India. Once a Company is registered and the Incorporation Certificate is received from the Registrar,  only then can a company become an Income Tax Assessee.
  4. Firm– A firm is formed, when 2 or more people come together to perform a specific designated business activity. Here the people agree to come together and contribute money and expertise to perform specific business practices. A firm can be a Partnership Firm, registered under the Indian Partnership Act of 1932 or a Limited Liability Partnership, established under the 2008 act. They too are eligible to become assessee’s after the receipt of their incorporation certificate.
  5. An Association of Persons– when a number of people come together for the furtherance of a common intention, they are called an Association of Persons. This purpose can be commercial or not. Normally, all the trusts are covered under this form of entity.
  6. A Local Authority– Local Authority means there needs to be government approval. Since, local authorities also make profits from providing service to the people, they are also eligible assessee’s. Example of Local Authorities could be Municipal Corporations, State Electricity Boards etc. 
  7. An Artificial Juridical Person (AJP)– This is one of the concepts not very widely seen in India, but however, this option is available to individuals. An AJP is basically an artificial person who is made the tax Assessee. An example of the same could be the idol of god, or a pet. Often, people make their pets, heirs to their property. Hence, the perpetual income that the pet derives, is liable to tax. Often, even animals who are involved in a kind of sport area can be made assessee’s. Like a horse can be made an Assessee in the case he runs a derby. 

Hence, here we can see that these are the different types of persons under Section 2(31) of the Income Tax Act, who qualify to be assessee’s under Section 2(7) of the Act.

Hence, when you chose a type of business form, be aware of the options available to you.

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