Section 163 of Income Tax Act – Who May Be Regarded as Agent of a Non-Resident

The taxation of non-residents in India has always been a sensitive & complex matter. Since non-residents may earn income in India but live abroad, the Income Tax Act requires a mechanism to ensure tax collection. Section 163 of the Income Tax Act provides this framework by laying down who may be regarded as agent of a non-resident.

This section essentially makes someone in India responsible for the tax obligations of a non-resident, ensuring that the government can recover dues. With globalization & increased cross-border transactions in 2025, understanding Section 163 has become vital for businesses, individuals, and tax practitioners.

What is Section 163 of the Income Tax Act?

Section 163 defines the term “agent” in the context of taxation of non-residents. A person in India can be treated as the agent of a non-resident if certain conditions are met. Once treated as an agent, that person becomes liable to fulfill tax obligations on behalf of the non-resident.

The law ensures that the Income Tax Department has a domestic point of contact for enforcing tax compliance, rather than chasing non-residents abroad.

Who May Be Regarded as Agent?

Under Section 163, the following persons may be regarded as agents of a non-resident:

1. Any person in India employed by or on behalf of the non-resident.
2. Any person in India through whom the non-resident is in receipt of income.
3. Any person in India who holds or controls money, property, or business connections of the non-resident.
4. Any person in India who is declared by the Assessing Officer as an agent through an official order."

Thus, who may be regarded as agent is defined broadly, covering employers, business associates, or even financial custodians.

Also Read: Taxation Rules for Non-Residents on Dividends, Interest, Royalties & Fees

Example of an Agent Under Section 163

Consider this situation:

• Mr. Anderson, a US resident, earns royalty income from India through his partnership with an Indian company.
• Mr. Kumar, who manages royalty payments in India, could be considered Mr. Anderson’s “agent” under Section 163.
• As an agent, Mr. Kumar may be required to discharge Anderson’s Indian tax obligations."

This deeming provision ensures that the Indian government can collect taxes efficiently from income sources within the country.

Powers of the Tax Authorities

Section 163 not only defines agents but also empowers authorities. They:

• Have the power to conduct inquiries, gather evidence, & call for information from the alleged agent.
• Can issue a notice or order treating a person as the agent of a non-resident.
• Ensure that taxes due from non-residents are collected without delay."

An order made under Section 163 treating the assessee as the agent of a non-resident is legally binding, subject to appeal rights.

Tax Liability of an Agent

Once declared an agent under Section 163, the person:

• Is responsible for filing returns on behalf of the non-resident.
• May be liable for paying taxes due in India from the non-resident’s income.
• Can be held accountable for penalties & interest if defaults occur.

However, the agent has the right to recover such taxes paid from the non-resident.

Also Read: Tax on Investment Income and Long-Term Capital Gains for Non-Residents

Broader Impact on Businesses and Individuals

For businesses:

• Indian subsidiaries of foreign companies may often be treated as agents.
• This means greater compliance responsibility in cross-border transactions."

For individuals:

• Agents of artists, sports personalities, or consultants earning from India may be treated as tax agents.

Thus, Section 163 applies widely across industries & professions.

Intangible Assets and Section 163

Interestingly, Section 163 also comes into play in cases where intangible assets like royalties, intellectual property, or digital rights are involved. The provision provides a more detailed breakdown of intangible assets for tax collection purposes, ensuring that non-residents earning through such sources do not escape tax liability in India.

Key Points to Remember

1. Section 163 establishes who may be regarded as agent of a non-resident.
2. Tax authorities have the power to conduct inquiries, gather evidence, and call for information before declaring someone an agent.
3. An order made under Section 163 treating the assessee as the agent of a non-resident is enforceable.
4. Being treated as an agent imposes tax filing & payment obligations.
5. Intangible assets & modern cross-border income streams are also covered under its scope.

Also Read: The Special Rule That Changes Tax for Non-Residents

Conclusion

Section 163 of the Income Tax Act ensures smooth tax administration in cases involving non-residents. By defining who may be regarded as agent, it allows the government to collect taxes domestically, even when the taxpayer resides abroad. Whether it is through royalties, property, or intangible assets, the law guarantees that non-resident income from India does not go untaxed.

For taxpayers in India, this means being vigilant. If you hold, manage, or facilitate a non-resident’s income, you may be treated as their agent. Compliance is key to avoiding disputes & penalties.

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