Section 162 Income Tax Act - Right of Representative Assessee to Recover Tax Paid

Current law: Section 305 of the Income-tax Act, 2025

Section 305 is titled Right of representative assessee to recover tax paid. It substantially carries forward the protection under section 162, with the procedure set out in four subsections instead of three. The 2025 Act applies from 1 April 2026, subject to applicable transitional and savings provisions for earlier years.

• Section 305(1): A representative assessee who pays an amount under the Act can recover it from the person represented or retain the equivalent from money held or later received in that representative capacity.
• Section 305(2): A representative assessee, or a person anticipating assessment in that capacity, may retain from money payable to the principal an amount equal to the estimated liability.
• Section 305(3): If the principal disputes the amount to be retained, the representative may obtain a certificate from the Assessing Officer specifying the amount that may be retained pending final settlement. The certificate authorises retention of that amount.
• Section 305(4): At final settlement, the amount recoverable from the representative cannot exceed the certified amount, except to the extent that additional assets of the principal are then held by the representative.

Official source: Income-tax Act, 2025 (Income Tax Department, PDF). See also the official section correspondence navigator.

Section 162 of the Income-tax Act, 1961: Explanation

Section 162 was part of Chapter XV, dealing with liability in special cases. It remains important when considering liabilities and proceedings governed by the 1961 Act.

Section 162(1): Recovery of tax already paid

A representative assessee who pays a sum under the Act in that capacity may recover it from the person on whose behalf the payment was made. Alternatively, the representative may retain an equal amount from money held, or later received, in the representative capacity.

Section 162(2): Retention of estimated tax and certificate

A representative assessee, or a person who reasonably anticipates being assessed in that capacity, may retain estimated tax from money payable to the principal. Where the parties disagree about the amount, the representative may request a certificate from the Assessing Officer stating the sum that may be retained pending final settlement. That certificate is authority for retaining the specified amount.

Section 162(3): Limit on recovery

At final settlement, recovery from the representative is generally limited to the amount specified in the certificate. An exception applies to the extent that additional assets of the principal are in the representative's hands at that time.

Official sources: Income Tax Department: Section 162 and Income-tax Act, 1961 as amended by Finance Act, 2025 (PDF).

Meaning of important legal terms

Representative assessee

A person whom the tax law treats as accountable for specified income belonging to, or received for, another person. Under the 1961 Act, section 160 identifies categories such as certain agents, trustees, and receivers; section 303 of the 2025 Act addresses the corresponding concept.

Principal

For this provision, the person on whose behalf the representative is liable to pay tax.

Assessing Officer

The income-tax authority empowered under the applicable Act to perform assessment functions and issue the retention certificate described in this provision.

Retention certificate

A certificate issued by the Assessing Officer on a dispute over the amount of estimated tax to be retained. It authorises retention pending final settlement, subject to the statutory rules.

Practical example

Suppose a trustee holds Rs. 8,00,000 on behalf of a beneficiary and estimates Rs. 1,20,000 in income-tax liability attributable to the income administered. Subject to the applicable law and facts, the trustee may retain the estimated amount from money otherwise payable to the beneficiary. If the beneficiary contests that amount, the trustee may seek an Assessing Officer's certificate. If the trustee has already paid the tax in the representative capacity, the law provides a right of reimbursement or retention.

This example is illustrative only; the amount legally retainable depends on the actual tax liability and the relevant statutory conditions.

Practical steps for a representative assessee

1. Identify the income and the legal basis on which representative-assessment provisions apply.
2. Maintain records of tax demands, payments, beneficiary funds, and estimated liability.
3. Communicate the basis of the proposed retention to the principal.
4. If the retention amount is disputed, apply to the jurisdictional Assessing Officer for the statutory certificate.
5. Reconcile retained funds and actual liability after final settlement and account for any balance appropriately.

Frequently asked questions

Can a representative assessee recover income tax paid for someone else?

Yes. Section 162(1) of the 1961 Act and section 305(1) of the 2025 Act recognise the right to recover the amount paid in the representative capacity or retain an equivalent amount from funds held for the person represented.

Can money be retained before the final assessment?

Yes, an amount equal to estimated liability may be retained from money payable to the principal, subject to the statutory provisions. Where there is disagreement, the Assessing Officer may issue a certificate.

Does the certificate set a limit on recovery?

Generally yes, at final settlement, but the statute provides an exception where the representative then holds additional assets of the principal.

Which section applies from 1 April 2026?

Section 305 of the Income-tax Act, 2025 is the corresponding provision for the new regime. Section 162 of the 1961 Act continues to matter for earlier periods and proceedings preserved by law.