Assessee under Income Tax Act: Types, Rights and Responsibilities

A Comprehensive Guide to Assessee under Income Tax Act: Types, Rights, and Responsibilities

1. Abstract

The concept of “assessee” is central to the administration of the Indian Income Tax Act, 1961. This article explores the definition, types, and roles of an assessee, explaining the distinctions between normal assessees, representative assessees, deemed assessees, and assessees in default. Through real-world examples and relevant case laws, we delve into the tax obligations, responsibilities, and legal interpretations tied to these classifications. This exploration not only highlights the importance of each category of assessee but also sheds light on the enforcement mechanisms of tax laws in India. By the end of this paper, readers will have a thorough understanding of the term “assessee” and its implications under the Income Tax Act, 1961.

2. Introduction

The legislation that oversees India’s tax system is the Income Tax Act of 1961.  The definition of a “assessee” is one of the key ideas under this Act.  Any person or organization that owes taxes or has been assessed for taxes by the government is considered an assessee.  In order to guarantee that taxes are collected in a fair and effective manner, the Income Tax Act specifies particular rules for various assessee types.

Hindu Undivided Families (HUFs), people, businesses, trusts, associations of persons (AOPs), and bodies of individuals (BOIs) are all examples of assessees.  Assessees’ classification is important since it establishes their rights, responsibilities, and applicable tax rates.

This blog aims to provide a detailed analysis of the concept of an “assessee,” including the different categories under the Income Tax Act. Through case laws and examples, we will explore the significance of each classification and its implications in the real world. This exploration will help understand how tax obligations are imposed on different individuals or entities and the legal mechanisms to enforce compliance.

3. Definition of an Assessee under the Income Tax Act

According to Section 2(7) of the Income Tax Act, 1961, a “assessee” is any individual who is required to pay taxes or any other amount of money under the Act’s provisions.  The word “assessee” refers to a broad category of people or organizations, including people, businesses, organizations, and other entities.  Furthermore, an assessee is anyone who has been found liable for taxes under the Income Tax Act.  In addition to people with taxable income, the term “assessee” can also refer to guardians or legal representatives of deceased individuals who may be required to fulfill tax responsibilities on behalf of another person.  Therefore, under the Income Tax Act, the term “assessee” is essential to the entire tax assessment and collection procedure.

Section 2(7) of the Income Tax Act:

“Assessee means a person by whom any tax or any other sum of money is payable under this Act, and includes any person who is deemed to be an assessee under any provisions of this Act.”

This definition is broad and inclusive, ensuring that various categories of individuals and entities are covered under the tax law.

4. Classification of Assessees

According to their distinct duties and obligations with regard to tax payment, assessees are categorized into various groups under the Income Tax Act.  According to the Act, these classifications aid in determining the responsibilities of the individual or organization.  The primary categories are:

• Normal Assessee

A normal assessee is a person who is responsible for paying taxes on the money they earn within a fiscal year.  Every person who has received money or suffered losses in the past fiscal year is required to pay taxes to the government in the current fiscal year.  Normal assessees are all people who pay interest or penalties or who are expected to receive a refund from the government.  Assume that over the previous five years, Mr. A, a paid individual, has been making his taxes on time.  Then, in accordance with the Income Tax Act of 1961, Mr. A can be regarded as a regular assessee.

Example: Suppose an individual named Mr. A has a salary income of ₹12,00,000 per annum. After claiming deductions under section 80C and 80D, his taxable income becomes ₹10,00,000. He is a normal assessee, and he is required to file an income tax return, declaring this income and paying taxes according to the applicable tax slab.

• Representative Assessee

There may be a case in which a person is liable to pay taxes for the income or losses incurred by a third party. Such a person is known as a representative assessee.

Representatives come into the picture when the person liable for taxes is a non-resident, minor, or lunatic. Such people will not be able to file taxes by themselves. The people representing them can either be an agent or guardian.

Example: Examine Mr. X’s situation.  He has spent the last seven years living elsewhere.  He does, however, get rent for the two Indian homes he owns.  To file taxes in India, he enlists the assistance of a relative, Mr. Y.  Mr. Y serves as a representative assessee in this instance.  Since Mr. Y is the property’s guardian and acts on behalf of Mr. X, he will be asked to produce the required paperwork if the assessing officer decides to look into the tax filing.

• Deemed assessee

People who are deemed assessees are those who may be given the duty of paying taxes by the authority in question.  Deemed  assessees may include:

• The eldest son or a legal heir of a deceased person who has expired without writing a will.
• The executor or a legal heir of the property of a deceased person who has passed on his property to the executor in writing.
• The guardian of a lunatic, an idiot, or a minor.
• The agent of a non-resident Indian receiving income from India.

Example: Mr. P receives rent from the business building he owns.  He has written and signed a will specifying that his niece will inherit the property upon his passing.  His niece will be regarded as the executor of the estate, or deemed assessee, upon his passing.  Tax on the rental revenue earned there will be her responsibility.

• Assessee-in-default

An assessee in default is a person who fails to fulfill their tax obligations under the Income Tax Act, such as not paying taxes or not filing returns within the prescribed time. An assessee in default is subject to penalties, interest, and enforcement actions by the tax authorities.

Example: If a business entity, XYZ Ltd., fails to file its income tax return by the due date or fails to pay advance tax, it is considered an assessee in default. The Income Tax Department can impose penalties, interest, and initiate recovery proceedings against the company.

5. Who becomes an assessee?

Not everyone is regarded as an income tax assessee by default.  The individual or thing must meet specific requirements.

Income exceeds exemption limit: A person or organization must submit a return and pay taxes if their income exceeds the exemption limit established by the Income Tax Act.  This is the main explanation for why individuals are categorized as assessees.

Particular requirements for specific assessments:  Regardless of their income level, a few additional categories, including corporations, trusts, and firms, are also regarded as assessees.  For example, even if a business does not earn a profit, it must nevertheless file tax reports.

Residents with overseas assets: Under the legislation, an Indian resident becomes an assessee if they possess assets or have a financial stake in another nation and are required to file a return.

6. Responsibilities of an income tax assessee

There are various obligations that come with being an income tax assessee. These duties guarantee that people, businesses, and other organizations abide by the Income Tax Act. Let us examine these responsibilities:

• Filing the Income Tax Return (ITR): Making sure the Income Tax Return is filed by the deadline is one of the assessee’s main duties. All information pertaining to income received, claimed deductions, taxes paid, and any other pertinent data should be included in the return.  The type of taxpayer and the source of income determine the ITR filing deadline.
• Making income tax payments: The assessee must make the appropriate income tax payment.  Generally speaking, taxes are computed using the taxable income following deductions.  Tax deducted at source (TDS), self-assessment tax, or advance tax are the three ways that payments can be made.
• Keeping accurate records: Each assessee is required to keep accurate records of their earnings and outlays. The data in the income tax return is supported in part by these documents.  They are also required in the event that an audit or verification is requested by the tax authorities.
• Tax law compliance: Assessees are required to abide by all applicable Income Tax Act provisions. This entails being aware of tax laws, deductions, and exemptions.  Penalties, interest charges, or even legal action may follow noncompliance.
• Answering tax notices: The assessee is required to reply to any notices sent by the tax authorities. Notices might be sent to clarify any problems with the tax return or to request additional information.  Serious repercussions may result from ignoring notifications.

7. Tax return types and income tax assessees

An assessee may be required to file one of several forms of income tax returns, contingent on the type and source of their income.  Different forms (ITR-1, ITR-2, ITR-3, etc.) have been developed by the Income Tax Department for different types of assessees.  Let us examine the typical ones:

• ITR-1 (Sahaj): This form is intended for people who get income from interest, pensions, and salaries. It is the most straightforward and often utilized tax return form.
• ITR-2: Individuals and HUFs who receive income from sources like foreign income or capital gains from real estate are required to file ITR-2.
• ITR-3: Individuals and HUFs with business or professional income are required to file this form.
• ITR-5: ITR-5 is intended for businesses, limited liability partnerships, AOPs, BOIs, and other like entities.

Each form has unique requirements, and the assessee must select the one that best suits their revenue information.

8. Benefits of taxes available to assessees

Certain tax benefits are available to you as an income tax assessee, and they may lower your taxable income.  The following are a few such advantages:

• Deductions under Section 80C: Up to Rs. 1.5 lakh in deductions are allowed under Section 80C of the Income Tax Act for investments in certain instruments, such as Public Provident Fund (PPF), National Savings Certificates (NSC), and life insurance premiums.
• Home loan deductions: You are eligible to deduct interest paid on a home loan up to Rs. 2 lakh annually under Section 24(b). You can also deduct up to Rs. 1.5 lakh from the principal repayment under Section 80C.  Your taxable income can be greatly decreased by taking these deductions.
• Medical insurance deductions (Section 80D): Section 80D allows you to deduct the premiums you pay for health insurance. Your age and the type of coverage determine the amount.

9. Conclusion

According to the Income Tax Act of 1961, the categorization of assessees is essential to guaranteeing that tax obligations are met precisely and on schedule.  Understanding the many categories of assessees, normal, representative, deemed, and assessees in default, allows tax authorities to collect taxes from a variety of people and organizations and enforce the law.  Through judicial precedents and real-world instances, we may observe how these classifications are used in various contexts and how the law guarantees equity and adherence to tax duties.  This framework guarantees the transparency of the tax system and the accountability of people or companies for their tax obligations

10. References

• https://deb.ugc.ac.in/Uploads/SelfLearning/HEI-P-U-0543/HEI-P-U-0543_SelfLearning_20210723105858.pdf
• https://indiankanoon.org/doc/1958149/
• https://www.taxbuddy.com/blog/income-tax-assessee
• https://cleartax.in/s/income-tax-assessee