Section 173: Recovery of Non-Resident Tax from Assets in India
Section 173 of the Income-tax Act, 1961 allows recovery of tax on specified India-sourced income of a non-resident through tax deduction at source and recovery of arrears from the non-resident's assets located in India. Its corresponding provision under the Income-tax Act, 2025 is Section 422.
What does Section 173 provide?
Where the person entitled to income described in Section 9(1)(i) of the 1961 Act is a non-resident, the tax chargeable on that income may be recovered through deductions under Chapter XVII-B. The tax may be assessed in the name of the non-resident or in the name of an agent liable as a representative assessee. Any arrears may also be recovered under the Act from assets of the non-resident that are in India or subsequently come into India.
The provision expressly operates without prejudice to Section 161(1) and Section 167, so the special asset-recovery mechanism does not displace the relevant representative-assessee rules.
Definitions and related legal provisions
Non-resident
A person who does not satisfy the applicable statutory tests for resident status for the relevant year. Residential status is determined under the Act, not merely by citizenship or nationality.
Income deemed to accrue or arise in India
Section 9(1)(i) of the 1961 Act addresses income arising, directly or indirectly, through or from a business connection in India, property in India, an asset or source of income in India, or transfer of a capital asset situated in India, subject to the provision's explanations and exceptions. The 2025 Act refers to Section 9(2) for the corresponding category.
Representative assessee and agent
An agent who is treated as a representative assessee may be assessed in respect of the non-resident's taxable income under the applicable statutory provisions. The relevant rules must be read with Section 161, Section 167 and the provisions governing agents of non-residents.
Tax arrears and assets in India
Arrears are tax amounts remaining unpaid after they become legally payable. Section 173 permits recovery from assets of the non-resident present in India or assets that later come within India, in accordance with statutory recovery procedures. It does not, by itself, make every asset automatically liable without due process.
Two recovery methods under Section 173
- Deduction at source: Tax on the specified income may be collected under the applicable TDS provisions of Chapter XVII-B, including relevant rules for payments to non-residents.
- Recovery from Indian assets: Where tax arrears remain outstanding, the tax authorities may use the recovery mechanisms permitted by the Act against the non-resident's assets situated in India, including assets acquired or brought into India later.
Section 422 of the Income-tax Act, 2025
Section 422, titled Recovery of tax arrear in respect of non-resident from his assets, substantially continues the earlier recovery mechanism. It applies where a non-resident is entitled to income referred to in Section 9(2). Tax chargeable in the non-resident's name or in the name of an agent who is a representative assessee may be recovered through Chapter XIX-B, while arrears may also be recovered from the non-resident's assets in India.
| Subject | 1961 Act | 2025 Act |
|---|---|---|
| Recovery provision | Section 173 | Section 422 |
| India-sourced income reference | Section 9(1)(i) | Section 9(2) |
| Representative assessee cross-reference | Sections 161(1) and 167 | Section 304(1) and (5) |
| Tax deduction chapter | Chapter XVII-B | Chapter XIX-B |
| Assets subject to arrears recovery | Non-resident's assets in India, including assets coming into India later | Same general asset-recovery principle |
Practical illustration
A non-resident derives taxable income from an Indian business connection. Tax is assessed but part of the demand remains unpaid. Subject to the applicable provisions and procedural safeguards, the tax authorities may seek recovery of arrears from the non-resident's assets located in India. If the non-resident later acquires another asset in India, that asset may also come within the scope of lawful recovery. The actual amount, liability and enforcement steps depend on the assessment and recovery record.
Compliance points for non-residents and Indian payers
- Identify the nature and source of income and whether it is taxable in India under domestic law.
- Check whether a tax treaty, if applicable, modifies the tax treatment or withholding requirement.
- Apply the relevant TDS provisions and maintain withholding certificates and supporting records.
- Keep records of assessments, outstanding demands, appeals, payments and assets in India.
- Review the law governing representative assessees and agents before attributing liability to another person.
Official legislation and government guidance
- Income Tax Department: Section 173 of the Income-tax Act, 1961
- Income Tax Department: Income-tax Act, 2025 (Section 422)
- Income Tax Department: Income-tax Act, 1961 as amended
- Income Tax Department: Non-resident taxpayer guidance
Frequently asked questions
Can Indian assets be used to recover a non-resident's unpaid income tax?
Yes. Where the statutory conditions are met, Section 173 or Section 422, as applicable, permits recovery of arrears from the non-resident's assets within India through the Act's recovery procedures.
Does Section 173 apply only when an agent is assessed?
No. The provision expressly refers to tax chargeable either in the non-resident's own name or in the name of an agent who is a representative assessee.
Does this provision replace tax deduction at source?
No. It recognises recovery through applicable TDS provisions and additionally permits recovery of arrears from assets in India.
This article provides general legal information. Tax treaty relief, assessment validity, procedural rights and the applicable tax period must be considered in individual cases.