Manhattan SC guide at page 76 (Ch-5) says that: "The pronoun that can be used to modify either people or thing". But the OG-11 at SC Q-130 says that: "The pronoun who, rather than that , should be used to refer to people".

The grammars I have read (e.g. Oxford's A Practical English Grammar) also say that that can be used for both people and things. Please clarify.

Nauman

Generally speaking, yes, that can be used for both. The GMAT writers, however, typically prefer to use who - so, if given the choice on the test, follow GMAC's preference. (You may see times where they don't give you the choice, in which case we don't care! But if they do give you the choice, give them what they want!)