Income tax law | Updated October 2026

Section 163: Who May Be Regarded as an Agent of a Non-Resident?

Section 163 of the Income-tax Act, 1961 identifies persons who may be treated as an agent of a non-resident for income-tax purposes. Its corresponding provision under the Income-tax Act, 2025 is Section 306. The law covers specified employment, business, income-receipt and trust relationships, as well as certain transfers of capital assets in India.

Current legal position: The Income-tax Act, 2025 applies from 1 April 2026, subject to its transition and savings provisions. Section 163 of the 1961 Act remains relevant to earlier periods and proceedings governed by that Act. See the official 2025 Act and official Section 163 text.

1. Who qualifies as an agent under Section 163(1)?

For purposes of the 1961 Act, an agent in relation to a non-resident includes a person in India who:

Is employed by or on behalf of the non-resident.
Has a business connection with the non-resident.
Is a person from or through whom the non-resident receives income, directly or indirectly.
Acts as trustee of the non-resident.

The provision also includes any other person, resident or non-resident, who has acquired a capital asset in India by means of a transfer. Whether a particular person can be assessed in a representative capacity depends on the statutory conditions and relevant facts.

2. Meaning of business connection

The Explanation to Section 163(1) refers to Explanation 2 to Section 9(1)(i) of the 1961 Act for the meaning of "business connection". The corresponding definition for Section 306(4) of the 2025 Act is in Section 9(9)(a) of that Act. The scope of this expression should be considered in light of the applicable tax year, facts and any relevant treaty provisions.

3. Exception for brokers dealing through non-resident brokers

Section 163 contains a specific exception where an Indian broker does not deal directly with or on behalf of a non-resident principal, but deals with or through a non-resident broker. Both conditions must be met:

The transactions take place in the ordinary course of business through the Indian broker.
The non-resident broker conducts those transactions in the ordinary course of its business and not as principal.

When these requirements are satisfied, the Indian broker is not deemed an agent under this provision in respect of those transactions. Section 306(2) of the 2025 Act states this exception separately.

4. Right to an opportunity of being heard

Under Section 163(2) of the 1961 Act, a person cannot be treated as an agent of a non-resident without an opportunity to be heard by the Assessing Officer on that question. The corresponding safeguard appears in Section 306(3) of the 2025 Act. This procedural protection allows the person concerned to explain the nature of the relationship and contest proposed agent status.

5. Section 306 of the Income-tax Act, 2025

The 2025 legislation reorganises the earlier Section 163 into four subsections:

Section 306(1): Categories of persons who may be agents of non-residents.
Section 306(2): Exception for qualifying broker transactions.
Section 306(3): Opportunity of hearing before agent status is assigned.
Section 306(4): Cross-reference defining business connection.

The official section correspondence navigator maps Section 163 of the 1961 Act to Section 306 of the 2025 Act.

6. Connection with representative assessee liability

Identification as an agent must be read together with the provisions on representative assessees, including Section 161 - liability of representative assessee and Section 162 - right to recover tax paid. An agent determination does not by itself establish that every receipt or transaction is taxable in India; chargeability and the scope of liability require separate examination.

7. Frequently asked questions

Can an Indian employee of a non-resident be treated as an agent?

Yes, employment by or on behalf of a non-resident is one of the statutory categories, but the applicable facts and procedural requirements must be examined.

Is a hearing required before a person is treated as an agent?

Yes. The Assessing Officer must give the person an opportunity of being heard regarding proposed agent status.

Does every Indian broker dealing with a non-resident become an agent?

No. The statute contains a specific exception for qualifying transactions through non-resident brokers where both statutory conditions are met.

Official references

Editorial note: This article is a general explanation of the statutory provisions. Application to an individual case requires examination of the relevant year, transactions and documents.