Recovery of Non-Resident Tax Arrears and Assessment of Persons Leaving India

The Income-tax Act, 2025 continues the special rules formerly contained in Sections 173 and 174 of the Income-tax Act, 1961. Recovery of specified tax arrears from assets of a non-resident is now governed by Section 422, while assessment of an individual leaving India is governed by Section 317.

Section 422 - Recovery of tax arrear in respect of non-resident from assets

Section 422 applies where the person entitled to income referred to in Section 9(2) is a non-resident. It operates irrespective of Section 304(1) or Section 304(5), which deal with representative assessee liability and related recovery provisions.

Income covered by the provision

The section is linked to Section 9(2) of the Income-tax Act, 2025. Accordingly, the recovery rule should be read together with the statutory provision identifying the relevant income deemed to accrue or arise in India and the rules concerning a representative assessee.

Assets within India

The recovery mechanism is not confined to assets physically present in India on the date the liability arises. The statutory language extends to assets of the non-resident that are within India or may at any time come within India, subject to the recovery provisions of the Act.

Section 317 - Assessment of persons leaving India

Section 317 is an accelerated assessment provision. It applies where it appears to the Assessing Officer that an individual may leave India during the current tax year or shortly after its expiry and has no present intention of returning to India.

Specified period and accelerated charge

The individual's total income for the period beginning on the first day of the current tax year and ending on the probable date of departure from India is chargeable to tax in that current tax year. Section 317 refers to this period as the specified period.

Separate assessment for completed tax years or parts

The total income of each completed tax year or part of a tax year included in the specified period is charged at the rate or rates in force for that tax year, with separate assessments for each such completed tax year or part.

Estimation of income

Where the individual's income for the specified period or a part of it cannot readily be determined in the manner otherwise provided by the Act, the Assessing Officer may estimate that income.

Notice requiring return

For making the accelerated assessment, the Assessing Officer may require the individual to furnish a return within the period specified in the notice, which cannot be less than seven days. The return covers total income for completed tax years included in the specified period and estimated total income for any part of a tax year included in that period.

Other return notices

Where Section 317(1) applies, the Assessing Officer may also issue the relevant statutory notice requiring a return for tax chargeable under other provisions of the Act. The period allowed for furnishing that return cannot be less than seven days.

Additional nature of the tax

Tax chargeable under Section 317 is in addition to tax, if any, chargeable under any other provision of the Income-tax Act, 2025.

Former Section 173 of the Income-tax Act, 1961

Former Section 173 provided that where a non-resident was entitled to specified income deemed to accrue or arise in India, the tax could be recovered by deduction under Chapter XVII-B, whether charged in the non-resident's name or in the name of an agent liable as representative assessee. Tax arrears could also be recovered from assets of the non-resident that were, or later came, within India.

Former Section 174 of the Income-tax Act, 1961

Former Section 174 authorised accelerated assessment where an individual might leave India during the current assessment year or shortly after its expiry without a present intention to return. It provided for taxation up to the probable departure date, separate assessments, estimation of income where necessary, a return notice allowing at least seven days, and tax in addition to tax chargeable under other provisions.

1961 Act and 2025 Act correspondence

Practical points

1. For non-resident recovery, identify the precise income covered by Section 9(2), the person assessed and any agent treated as representative assessee.
2. Recovery may extend to qualifying assets of the non-resident that later come within India.
3. Section 317 requires the Assessing Officer to form the statutory view that the individual may leave India and has no present intention of returning.
4. The accelerated assessment period runs from the first day of the current tax year to the probable date of departure.
5. A notice under the special leaving-India procedure must allow at least the statutory minimum period for furnishing the return.

This article is a general explanation of the statutory framework. Actual liability depends on the relevant tax year, nature of income, representative assessee relationship, recovery facts, residence and departure circumstances, notices issued and applicable transition provisions.