In Arabic, the word ‘kufr’ means denial, and ‘kafir’ refers to someone who denies. However, over time, the term kafir has taken on a derogatory connotation. A deeper study reveals that this misunderstanding has caused much confusion. It is commonly assumed that kafir and non-Muslim are synonymous, implying that all people who are not Muslim are kafir. This is undoubtedly a misconception. If kafir referred to a specific group, then in the Quranic verse (106:1), instead of the words, ‘Li'ilafi Quraysh’ [English: ‘For the security of the Quraysh’], the phrase should have been ‘Li'ilafi al-Kuffar’ [English: ‘For the security of Kuffar’] because at the time of its revelation, the Quraysh were not followers of Islam.

In reality, the word kafir is not synonymous with a non-Muslim. In Islam, kafir refers to a specific characteristic or behaviour, not a collective title for a nation or group. The word kafir is not a national label. According to this principle, the Hindus of India or non-Muslims from other countries, from an Islamic perspective, are simply regarded as human beings. None of them can be called kafir or kuffar. A kafir is one who denies (one who refuses to accept). Many English translators of the Quran often render kafir as "unbeliever." This translation is inaccurate. "Unbeliever" refers to someone who does not follow a particular faith, whereas kafir refers to someone who, despite clear evidence, chooses to deny. This is because the word kafir signifies the act of denial, not a national or ethnic identity.

Source: Hikmat e Islam