Agent of a Non-Resident and Tax Where Beneficiaries' Shares Are Unknown
Sections 306 and 307 of the Income-tax Act, 2025 contain the current provisions on who may be regarded as an agent of a non-resident and the charge of tax where the shares of beneficiaries are indeterminate or unknown. These provisions broadly correspond to Sections 163 and 164 of the Income-tax Act, 1961.
Section 306 of the Income-tax Act, 2025 - Who may be regarded as agent
Section 306 identifies persons who may be treated as an agent of a non-resident for income-tax purposes. The provision is relevant to representative assessment and should be read with the provisions governing representative assessees and income deemed to accrue or arise in India.
Persons included as agent of a non-resident
An agent in relation to a non-resident includes:
- a person in India employed by or on behalf of the non-resident;
- a person in India having a business connection with the non-resident;
- a person in India from or through whom the non-resident receives income, directly or indirectly;
- a trustee of the non-resident; and
- any other person, whether resident or non-resident, who has acquired a capital asset in India by means of a transfer.
Broker exception
An Indian broker dealing with or through a non-resident broker, rather than directly with or on behalf of the non-resident principal, is not treated as an agent for those transactions where the statutory conditions are satisfied. Broadly, the transactions must be in the ordinary course of business through the Indian broker and the non-resident broker must also be acting in the ordinary course of business and not as principal.
Opportunity of being heard
A person cannot be treated as the agent of a non-resident without being given an opportunity of being heard by the Assessing Officer on the proposed liability. This statutory hearing requirement is an important procedural safeguard.
Meaning of business connection
For Section 306, the expression business connection takes its meaning from Section 9(9)(a) of the Income-tax Act, 2025. The scope of the agency provision therefore needs to be considered together with the rules governing income deemed to accrue or arise in India.
Section 307 of the Income-tax Act, 2025 - Charge of tax where share of beneficiaries unknown
Section 307 deals principally with representative-assessment situations where income is not specifically receivable for one identifiable person or where the individual shares of the beneficiaries are indeterminate or unknown.
General rule
Income, or the relevant part of income, concerning the representative persons referred to in Section 303(1)(c) and (d) is generally chargeable at the maximum marginal rate where:
- the income is not specifically receivable on behalf of or for the benefit of any one person; or
- the individual shares of the persons for whose benefit the income is receivable are indeterminate or unknown.
Cases taxed at the rate applicable to an association of persons
Section 307 also specifies circumstances in which the relevant income is instead chargeable at the rate applicable to an association of persons as if it were its total income. These include specified cases involving beneficiaries without income above the applicable non-taxable amount, certain testamentary trusts, qualifying pre-1 March 1970 non-testamentary trusts, and specified employee benefit funds, subject to the detailed statutory conditions.
Business income of specified trusts
Where the income of the representative person referred to in Section 303(1)(d) consists of or includes profits and gains of business, Section 307 contains a special maximum-marginal-rate rule, subject to the statutory exception for qualifying testamentary trusts created exclusively for a dependent relative.
When beneficiaries or their shares are treated as unidentified
Section 307 provides rules for determining when income is not specifically receivable for an identified person and when individual beneficiary shares are indeterminate or unknown. The identity of beneficiaries and their shares must satisfy the requirements stated in the relevant court order, trust instrument or wakf deed, as applicable.
Former Sections 163 and 164 of the Income-tax Act, 1961
For periods and proceedings governed by the Income-tax Act, 1961, Section 163 dealt with persons who could be regarded as agents of non-residents. It covered employees or representatives of a non-resident, persons having a business connection, persons through whom the non-resident received income, trustees and certain transferees of capital assets in India. It also required an opportunity of being heard before a person could be treated as an agent.
Former Section 164 dealt with taxation where income held by specified representative assessees was not specifically receivable for an identified beneficiary or where beneficiary shares were indeterminate or unknown. It prescribed the maximum marginal rate as the general rule and contained detailed exceptions and special rules, including rules relating to certain trusts, charitable or religious income and business income.
1961 Act and 2025 Act section correspondence
| Subject | Income-tax Act, 1961 | Income-tax Act, 2025 |
|---|---|---|
| Who may be regarded as agent | Section 163 | Section 306 |
| Charge of tax where share of beneficiaries unknown | Section 164 | Section 307 |
Practical points
Whether a person can be treated as an agent depends on the statutory relationship with the non-resident and the facts of the transaction. An Assessing Officer must provide the affected person an opportunity of being heard before treating that person as an agent. In trust cases, the trust instrument, court order or wakf deed and the manner in which beneficiaries and their shares are specified can directly affect the applicable tax treatment.
Tax treatment depends on the applicable tax year, facts, trust or transaction documents, amendments and other provisions of the Act. The statutory text and applicable rules should be checked for the relevant period.