The term “people of the book” is never explicitly restricted to some defined set of people in the Quran or in something that the prophet Muhammad (peace and blessings be upon him) said. Who it applies to is therefore up to us to workout based on the evidence available in each case which we encounter.
We must also be aware of the distinction between what is openly evident and what is hidden in the heart. In our earthly judgments we have to judge by what is openly evident.
In issues of the Afterlife, God judges us by what is hidden in the hearts. Even if Hindus as a whole are not classified as ‘people of the book’ for the sake of earthly judgments, we can never say for certain how God will judge an individual because we do not know what is in his or her heart.
We can only know what God says about how He will judge people. Anyone who believes in God and who tries to do what is right in their lives will have their reward from God. We know this from very clear verses in the Quran including.
{And they say: “None shall enter Paradise unless he be a Jew or a Christian.” Those are their (vain) desires. Say: “Produce your proof if ye are truthful.” Nay,-whoever submits His whole self to God and is a doer of good,- He will get his reward with his Lord; on such shall be no fear, nor shall they grieve.} (All-Baqarah 2:111-2)
To believe in God and submit yourself to His will means to believe in God without partners or rivals in His power and authority to give law about right and wrong and hence how you should live your life.
Worshiping idols amounts to asserting that there is not one morality, one system of right and wrong, but that there are many rival moralities and many different masters to serve.
How can someone be a morally good person, how can they be submitting themselves to the will of God when they are in fact submitting themselves to multiple Gods? Of course it is impossible.
This is the core of the message of Islamic monotheism. As for whether Hindus could be regarded as monotheists, it may be that some of them think in terms of one God and universal morality and in so far as they try to live by that, God may reward them.
Indeed monotheism may be in the earliest teachings of their scriptures. However, much of this material is obscured by history and we cannot be sure of the original teachings.
Just as in Christianity, the earliest followers of Christ would not recognize much of what today passes for Christianity, the earliest followers of Krishna might not recognize what is today Hinduism.
We simply do not know with any great certainty. The situation of such people who are Hindus but still on monotheism would be analogous to these people who rejected worship of idols at the time of Prophet Muhammad and held to what remained of the monotheistic teachings of Abraham.
However, it must be stressed that we can be much more certain of the authenticity of the message of Prophet Muhammad and from that message we have evidence that he was indeed a Prophet with revelation and guidance from God.
Once people know enough about Prophet Muhammad, inevitably their hearts and minds will either accept it and become Muslims or they will reject it and become insincere. With sustained rejection of Muhammad’s message, such people lose any claim to be doing what is right and they know that their rejection is a great sin.
Such people, no matter what their creed, are not part of those mentioned in the verse above who will have their reward with God.
There is a simple test to see if people who claim to be on the true religion of monotheism are indeed on it.
{So if they dispute with thee, say: “I have submitted My whole self to God and so have those who follow me.” And say to the People of the Book and to those who are unlearned: “Do ye (also) submit yourselves?” If they do, they are in right guidance, but if they turn back, Thy duty is to convey the Message; and in God’s sight are (all) His servants.} (Aal `Imran 3:20)
