Income Tax 2025

Appearance

Recovery of tax arrear in respect of non-resident from his assets. ​

422 ​

Irrespective of the provisions of sections 304(1) or (5), where the person entitled to the income referred to in section 9(2) is a non-resident, the tax chargeable thereon, whether in his name or in the name of his agent who is liable as a representative assessee—

  • (a) may be recovered by deduction under the provisions of Chapter XIX-B; and
  • (b) any arrears of tax may also be recovered as per the provisions of this Act from any assets of the non-resident which are, or may at any time come, within India.
Explanation

Section Summary: ​

Section 422 of the new income tax law in India deals with the recovery of tax arrears from non-residents. It allows the tax authorities to recover unpaid taxes from a non-resident taxpayer, either directly or through their agent (representative assessee), by deducting the amount from their income or by seizing any assets they own or may acquire in India.

This section ensures that non-residents cannot evade their tax liabilities in India by leveraging their non-resident status. It provides the government with the authority to recover taxes from assets located within India, even if the taxpayer is not physically present in the country.

Key Changes: ​

  1. Expanded Recovery Mechanisms: Unlike the previous provisions, Section 422 explicitly allows the recovery of tax arrears from any assets of the non-resident that are or may come within India. This broadens the scope of recovery beyond just income or funds held by the non-resident or their agent.
  2. Clarification on Representative Assessee Liability: The section clarifies that the tax liability can be recovered from the non-resident or their agent (representative assessee), ensuring that both parties are accountable for unpaid taxes.

Practical Implications: ​

  1. For Non-Residents: Non-residents with income sourced in India must ensure timely payment of taxes. Failure to do so could result in the government recovering the dues from their assets in India, such as bank accounts, property, or other investments.
  2. For Agents (Representative Assessees): Agents acting on behalf of non-residents must be cautious, as they can be held liable for the non-resident's tax arrears. They may need to ensure proper tax compliance to avoid recovery actions against their own assets.
  3. For Tax Authorities: This section strengthens the government's ability to recover taxes from non-residents, even if they are not physically present in India. It provides a clear legal framework for targeting assets within the country.

Critical Concepts: ​

  1. Non-Resident: A person who is not a resident of India for tax purposes. Their tax liability is typically limited to income earned or sourced in India.
  2. Representative Assessee: An agent or representative of a non-resident who is responsible for managing their income or assets in India. They can be held liable for the non-resident's tax obligations.
  3. Chapter XIX-B: Refers to the provisions related to tax deduction at source (TDS). Under this chapter, taxes can be deducted directly from the income payable to the non-resident.

Compliance Steps: ​

  1. For Non-Residents:
    • Ensure accurate reporting of income sourced in India.
    • Pay taxes on time to avoid arrears and potential recovery actions.
    • Maintain records of assets in India to monitor potential exposure to recovery actions.
  2. For Agents (Representative Assessees):
    • Verify the tax compliance status of the non-resident they represent.
    • Deduct and remit taxes under Chapter XIX-B (TDS) as applicable.
    • Keep detailed records of transactions and tax payments to avoid liability for unpaid taxes.

Examples: ​

  1. Scenario 1: A non-resident company earns royalty income from an Indian firm but fails to pay the applicable taxes. Under Section 422, the Indian tax authorities can recover the unpaid taxes by seizing the company's bank account in India or any other assets it owns within the country.
  2. Scenario 2: An individual non-resident owns a property in India but has unpaid income tax dues. The tax authorities can recover the arrears by attaching the property and initiating recovery proceedings, even if the individual is not present in India.

This section ensures that non-residents cannot evade their tax obligations in India by leveraging their non-resident status, as the government has the authority to recover dues from their Indian assets.