Disregarded Entity

Meaning & Definition

A Disregarded Entity is a distinct legal entity; for federal tax purposes, it is treated as if it were the same as its owner. Therefore, a Disregarded Entity’s income, expenses, and liabilities are treated as if they belong to the owner and reported directly on the owner’s tax return. Such entities are not taxed separately.

Importance of Disregarded Entity

• Simplified tax reporting and compliance.
• Reduced the complexity of administration and filing.
• Increased clarity surrounding the tax ownership structure of businesses.
• Effects on payroll, vendor payments, and statutory filings.
• Aligns HR and finance functions across entities.

Compliance & Policy Considerations 

There is no specific definition for “disregarded entity” in either the labour or tax laws of India. However, you will probably be treated as a disregarded entity under other Indian legislation, like the Income Tax Act of 1961, the GST laws, or the corporate structuring rules. In these cases, you will pay taxes or have your income assessed at the owner or parent company level, depending on how you are structured and registered.