Who Are Taxpayers? Meaning, Types, Rights & Responsibilities

Every morning, the average Indian starts their day with the use or consumption of everyday items like tea, toothpaste, or soap. Goods and services tax (GST) is included with the purchase of these items and many other products of regular use. So, when you consider the payment of indirect taxes, every Indian is a taxpayer.In recent years, around seven crore taxpayers have been filing Income Tax Returns (ITRs) every financial year. Nearly 6.97 crore returns were filed in the 2020-21, 7.14 crore in the next financial year and more than 6.85 crore returns were filed by mid-November 2022 for the assessment year 2022-23. This is where the number of income taxpayers in Indiastands at present.

A taxpayer is an individual or entity like partnership or company, paying income tax under the provisions of the Income Tax Act. Taxpayers calculate their income for the previous financial year, get their books audited if required, pay their income tax as per the applicable ITR form, pay taxes at source, as advance tax or after self-assessment, and even claim a tax refund if eligible.

Taxpayers can be of the following types –

• Individuals, including residents and non-residents
• Corporations engaged in business activities, like Hindu Undivided Family, Firms, Companies, Associations of Persons, Bodies of Individuals, Local Authority and Artificial Judicial Persons.

As stated, not everyone in India is a taxpayer. So, when it comes down to who is a taxpayer in India, it is well-defined in the Income Tax Act 1961.People who are taxpayersbecome so based on two broad factors:

• The income earned by the person must be taxable, i.e., is should not be exempt income.
• The income earned during the financial year must be more than the maximum amount not chargeable to tax.

The rights of a taxpayer include,

• Information about the tax laws and transactions with the income tax department
• Question tax authorities in case of breach of duties and claim answers
• Submission of tax returns
• Appoint an authorised representative for tax-related duties
• Redressed for defaults by tax authorities

Your responsibilities as a taxpayer include,

• To remain cooperative, fair, and honest during tax assessment and payment
• Assist and facilitate audit officers to perform their duties
• Respond aptly to tax queries
• Not declare incorrect income or seek undeserved relief in tax returns
• Keep their tax records safe for the specified period required

Taxable income in India is categorised under five income heads. These are:

1. Income from salaries

It includes income earned by an employee from an employer as remuneration under the terms of engagement. Salary income is often further divided into basic salary, various allowances, and reimbursements. Even pension income received after retirement is included as income from salaries. Form 16, issued by an employer to employees, indicates the taxability of the income from salaries and tax deducted and deposited thereon.

2. Income from house properties

Property owned by a person and let out on rent for residential or commercial purposes generates rental income. This income is taxed under this head. However, the entire rent receipt is not chargeable to tax. A standard deduction of 30% of the property’s net annual value as well as municipal taxes can be deducted from the rental income earned during the year.

3. Income from capital gains

Capital gains are the profits earned by the owner of an asset on the sale of such asset. Capital assets include house property, jewellery, land, stocks, bonds etc.

4. Income from business or profession

Business income is calculated under the provisions of sections 30-43D of the Income Tax Act and classified under this income head. Besides, professionals like chartered accountants, lawyers, doctors, freelancers, life insurance agents, and tutors also report their income for the financial year under this header.

5. Income from other sources

This is an umbrella category that includes myriad incomes like gambling and lottery income, gifts received, interest, rent from property other than a house, etc.While these are incomes on which tax is applicable, there are various types which are expressly pronounced as exempt by the Act. However, let us get into the second factor that decides whether you are a taxpayer or not.

Regular taxpayers would know that income tax is presently calculated under two tax regimes. The income tax payer has the option of choosing either one. For individuals below the age of 60 years: Old Regime - For income of up to ₹2.5 lakh - Tax rate is NilNew Regime - For income of up to ₹2.5 lakh - Tax rate is Nil For individuals above the age of 60 years but less than 80 years: Old Regime - For income of up to ₹3 lakh - Tax rate is NilNew Regime - For income of up to ₹2.5 lakh - Tax rate is NilFor individuals above the age of 80 years:Old Regime - For income of up to ₹5 lakh - Tax rate is NilNew Regime - For income of up to ₹2.5 lakh - Tax rate is Nil Important - Rebate under section 87A is available to resident individual taxpayer s whose total income is not more than ₹5 lakh. The Finance Bill 2023 has further increased this limit to ₹7 lakh for the new regime.

A taxpayer pays income tax as per the tax slabs defined under the Income Tax Act. There are different slabs under the new regime and the old regime. Slabs are different for regular, senior, and super senior citizens.

1. For Individuals (resident or non-resident) less than 60 years of age at any time during the previous year:
2. Resident or non-resident individuals between 60 and 80 years:
3. Resident or non-resident individuals aged 80 years or more: You can also use the “ Annual Information Statement ” tool of the Income Tax Department and get the year’s snapshot of financial transactions and tax deductions.

Income tax returns (ITR) are predefined forms in which you can disclose information about your income and taxability and file it with the Income Tax Department. There are different ITR that taxpayers must file as per their taxability. As a taxpayer, you must check which ITR is suitable for reporting the income you earned during the previous year. ITR-1 - It is meant for resident individuals with income less than or equal to ₹50 lakh from salary/pension, one house property, or income from other sources. ITR-2 - Income of over ₹50 lakh, from sources other than business/ enterprise or professions, which may include capital gains (including crypto income), more than one house property, foreign income or asset and by a person holding directorship in a company and/or holding unlisted equity shares or agricultural income up to ₹5,000. ITR-3 - To be filed by people with incomes mentioned in ITR-2 and income from business or profession, including crypto income as business income, and by a partner of a firm. It is to be filed by people who cannot file ITR 1, 2 and 4. ITR-4 - ITR 4 applies to that which is filed by individuals and HUFs with a total income of less than or equal to ₹50 lakh. It can be filed by taxpayers with incomes mentioned in ITR-1 and/or presumptive income subject to Section 44AD, 44AE and 44ADA taxation.(Note: If business turnover exceeds ₹2 crore, ITR-3 to be filed). ITR-5 - is filed by firms, limited liability partnerships, associations of persons, and a body of individuals. The list also includes - artificial juridical person (AJP), co-operative society, estate of deceased, estate of insolvent, business trust and investment fund, subject to conditions. ITR-6 - is filed by companies registered under the Companies Act. However, companies claiming exemptions under section 11, i.e., earning income from property held for religious or charitable purposes, do not file ITR 6. ITR-7 - is filed by a person or company under section 139 (4A)/ (4B)/ (4C)/ (4D)/(4E) and (4F). These are explained below -

• Income from charitable /religious trust- Section 139 (4A)
• Income from a political party – Section 139 (4B)
• Income from scientific research institutions – Section 139 (4C)
• Income from university or colleges or institutions or khadi and village industries – Section 139 (4D)
• By a business trust- Section 139 (4E)

Also Read: 5 Step Guide To Check The Status Of Your Previous Years Income Tax Returns

To understand who a taxpayer is not, you have to check the list of exempt incomes specified under section 10. This is an exhaustive list spread across 50 subsections, but notable among them is income from -

• Agriculture
• The amount received out of family income, HUF,
• Share of profits,
• Interest paid to Non-Resident, to Non-Resident on Non-Resident (External) Account, to a person of Indian Origin and who is Non-Resident,
• Leave Travel Concession or Assistance,
• Remuneration or Salary received by foreign citizens, employees of foreign enterprises, including foreign ships and foreign governments,
• Overseas perquisites/allowances paid by Government to its employees,
• Income of a consultant and their employees,
• Gratuity,
• Commuted pension,
• Leave encashment on retirement,
• Retrenchment compensation,
• Payment received under Bhopal Gas Leak Disaster or any other disaster,
• Retirement compensation,
• The amount received under a Life Insurance Policy, statutory provident fund, recognised provident fund, superannuation fund, house rent allowance, business expenditure allowance, interest income, and scholarship,
• Allowance of MPs/MLAs or MLCs,
• Awards instituted by the Government,
• Pension received by certain winners of gallantry awards,
• Family pension received by family members of armed forces, including para-military forces,
• Income of a local authority, scientific research association, news agency, specific professional institutions, registered trade unions, etc.
• Income of child clubbed under section 64.

This is not the complete list of Section 10 exemptions; for the full list, visit the Income Tax Department website , enter “10” in “Section No.” and click on the “search” button.

The role of a taxpayer goes beyond checking taxable income, paying taxes, and filing returns. Similarly, the Income Tax Department is committed to going beyond recovering tax revenue and issuing notices to defaulters. The Income Tax Department has a taxpayer’s charter in place, which can be a ready reckoner for a taxpayer.As per the charter, the expectations from a taxpayer are,

• Honesty and compliance - Taxpayers are expected to be honest in their disclosures. They must provide full information and fulfil their compliance expectations.
• I nformed - Taxpayers are expected to remain informed about the compliance obligations under the Income Tax laws. The taxpayer should seek the help of the tax department as and when required.
• Maintain accurate records - Taxpayers are expected to maintain accurate records of their transactions or business as required under the applicable law.
• Be aware of the work done by the authorised representative - Taxpayers must be aware of the information shared and submissions made by the authorised representative on their behalf. Taxpayers are advised not to plead ignorance on the same.
• Timely response - The Department expects the taxpayers to respond in time when it comes to making submissions required under the tax law.
• Timely payment - The Department also expects taxpayers to pay their tax amount due as per law within the predefined time and in the correct manner.

The Department is committed to the taxpayer on the following points:

• Offer fair, courteous, and reasonable treatment - The Department is committed to providing prompt, courteous, and professional assistance while conducting its dealings with the taxpayer.
• Treat the taxpayer as honest - Going by the maxim of “presumed innocence,” the Department must treat all the taxpayers as honest unless it has a reason to believe otherwise.
• Provide a mechanism for appeal and review - The Department shall provide a mechanism of fair and unbiased appeal and review to its taxpayers.
• Provide complete and accurate information - The Department will always share the correct information with the taxpayer so that the latter can duly fulfil their compliance obligation under the law.
• Provide timely decisions - There is a timeline defined for all income tax proceedings. The Department will ensure that all its decisions in every income tax proceeding is taken within the time prescribed under law.
• Collect the right tax amount - The Department shall collect the tax amount as rightly due under the law.
• Respect the privacy of taxpayers - The Department will respect the privacy of the taxpayer and follow the due process of law. Its inquiry, examination, or enforcement action will be no more intrusive than what is necessary.
• Maintain confidentiality - The Department shall disclose information provided by taxpayers to the rest of the department only if it is authorised by the law.
• Hold its authorities accountable - The authorities of the department will and can be held accountable for their actions by the department.
• Enable representative of choice - The Department is expected to allow a taxpayer to opt for an authorised representative of their liking.
• Providing a mechanism for lodging complaints - The Department has to provide a mechanism to lodge a complaint and ensure prompt disposal of such complaints.
• Provide a fair and just system - The Department will ensure a fair and unbiased mechanism that will resolve tax-related issues in a timely manner.
• Publish service standards and report periodically - The Department shall publish the latest standards on service delivery and share them publicly at periodic intervals.
• Reduce the cost of compliance - The Department has to take the cost of compliance into account while dispensing tax legislation.

Also Read: 10 Reasons Why You May Get a Notice From The Income Tax Department

To sum up, a taxpayer’s responsibility goes beyond estimating income and tax liability. You must know whether your income type and amount are liable for tax and which income tax regime is suitable.
Likewise, you should know which of your incomes are outside the ambit of tax liability. By being an informed and alert taxpayer, you can make sure that you meet all compliance obligations in a timely and correct manner.