What is the Taxpayer?
The taxpayer is a person or a corporation who has to pay tax to the government based on their income, and in the technical sense, they are liable for, or subject to or obligated to pay tax to the government based on the country’s tax laws.
- In taxation, a taxpayer is usually termed as an Assessee, who is a person liable to pay tax either directly or indirectly to the government based on nature and quantum of income earned during the previous year.
- The Taxpayer is further required to pay tax to the government in specified routes/methods. I.e., thorough assessment of his income and direct depositDirect DepositDirect deposit is a technique of sending money from the payer's account to the payee's account digitally, without any paper cheques. For example, companies use it to transfer salaries into their employee's accounts. of tax in case of direct tax and during the purchase of a product or service in case of indirect tax.
- Taxpayers are identified based on the identity card issued by tax authorities in their respective countries. Such as in India, PAN cards are used as identity cards issued by the tax department for the identification and assessment of a taxpayer.
Types of Taxpayers
Taxpayers are primarily classified into two types that are individuals and corporations:
- Individuals – These taxpayers are human beings who are liable to pay tax for the income they earn.
- Corporations – These taxpayers are corporates that are liable to pay tax on the profits earned during the previous year from their business activities.
Rights of Taxpayers
- They have a right to be informed about the tax laws and their transactions with the tax department.
- The right to question tax authorities in case of breach of their duties and the right to be answered for such queries;
- The right to submit their tax returns and other related applications;
- The right to appoint an authorized representative to perform their duties related to tax;
- Also, they further have the right to be redressed for default committed by tax authorities.
Responsibilities of Taxpayers
- They have a responsibility to be cooperative, well mannered, fair, and honest and further maintain integrity during assessment and payment of tax;
- They must provide reasonable facilities and assistance to enable the audit officers to carry out their duties
- They should respond aptly to the queries of tax authorities and respect their duties.
- They should not declare incorrect income or seek reliefs falsely while submitting their tax returns.
- Taxpayers are also required to keep safe their tax records for a certain period based on the regulatory requirement from the end of the assessment year in which the income tax return was filed.
Taxpayers vs. Non-Taxpayers
Taxpayers are those who are liable to or subject to payment of tax to the government. Whereas non-taxpayers are those who are not paying tax to the government from the income earned by them, there are several reasons for the non-payment of the tax, such as.
- They may be exempted from payment of tax due to the nation having double taxationDouble TaxationDouble Taxation is a situation wherein a tax is levied twice on the same source of income. It usually occurs when the same income is taxed both at corporate as well as at the individual level. avoidance agreements with the other nation in which they are earning or situated.
- Maybe the income earned by them in the previous year is not taxable as per tax laws, which is usually referred to as an exempt income.
- The taxpayers may even violate the law by not paying taxes, which can be termed as tax evasionTax EvasionTax Evasion is an illegal act in which the taxpayers deliberately misreport their financial affairs to reduce or evade the actual tax liability. This includes using multiple financial ledgers, hiding or representing lesser income, gains, or profits than actually earned, overstating deductions, & failing to file returns. . Tax evasion is entirely different from tax avoidanceTax AvoidanceTax avoidance is the process of reducing the income tax liability of an individual or firm by adopting the lawful methods. The taxpayers can claim exemptions and deductions as allowed under the nation's tax provisions. Such as investments in municipal bonds and deductions for business loss. (which involves the use of legal methods to lower the amount of tax payable to the government) and tax management (which involves following correct procedures for ensuring timely payment of tax).
- Based on the information provided in this article, we can conclude that almost all individuals and corporations are directly or indirectly involved in the payment of tax and termed as taxpayers in the economy due to the nature of a collection of tax by the government.
- Also, the classification of the types of taxpayers discussed in this article is only a summary. However, in reality, the classification is further divided depending upon the tax laws varying across nations such as in India, an individual’s residential status is divided further into Resident and Ordinary Resident, Resident but not Ordinary Resident for determining the tax payable by them.
- And also in a few tax haven countries tax is either collected only from the corporation or only from individuals depending on their revenue structures and its regulations such as Dubai where individuals are not liable to pay tax on the salary that they earn in the previous year whereas only companies engaged in banking and oil industries are required to pay tax.
This has been a guide to What is Taxpayers and its Definition. Here we discuss the types of taxpayers and rights along with responsibilities and differences between taxpayers and non-taxpayers. You can learn more about from the following articles –