Rs. 100- Rs. 10 crore
Start investing with Rs. 100 | Easy KYC | Expert-managed funds
How to Invest in SIP A Beginner's Guide
In summary
Section 163 of the Income Tax Act, 1961 explains who may be treated as an agent of a non-resident for Indian Income Tax purposes. It is part of the provisions dealing with representative assessees.
- Section 163 applies to specified relationships with non-residents.
- An agent may include a person in India with a business connection to the non-resident.
- A person through whom the non-resident receives income may also fall within the provision.
- A trustee of the non-resident can be covered.
- Certain persons who acquire a capital asset in India from a non-resident can also fall within Section 163.
- A person is not automatically treated as an agent merely because they fall into one of these categories.
- The Assessing Officer must give the person an opportunity to be heard before treating them as an agent.
The provision is relevant when a non-resident has income or assets connected with India and tax compliance needs to be addressed through a representative assessee.
What is Section 163 of the Income Tax Act?
Section 163 of the Income-tax Act, 1961 specified who could be regarded as an agent of a non-resident for income-tax purposes.
The provision covered specified relationships between a non-resident and another person, including employment, business connection, receipt of income, trusteeship, and certain transfers of capital assets in India.
A person did not become an agent merely because the tax department chose to label them as one. Section 163(2) required the Assessing Officer to give the person an opportunity to be heard before treating them as an agent.
For tax years beginning on or after 1 April 2026, the Income-tax Act, 2025 applies instead. The corresponding rule identifying who may be regarded as an agent of a non-resident is now contained in Section 306.
Is Section 163 still applicable in 2026?
Section 163 can still matter in 2026, but only in the context of tax years governed by the Income-tax Act, 1961.
The position is:
| Tax period | Applicable framework |
|---|---|
| Tax years beginning before 1 April 2026 | Income-tax Act, 1961 can continue to apply |
| Tax years beginning on or after 1 April 2026 | Income-tax Act, 2025 applies |
| Old Section 163 equivalent | Section 306 of 2025 Act |
| Old representative assessee concept | Section 303 of 2025 Act |
| Current representative liability | Section 304 of 2025 Act |
Last reviewed: September 2026
The Income Tax Department has clarified that proceedings relating to earlier tax years continue under the old Act even after its repeal.
This distinction matters when reading older notices, judgments, tax guidance, or assessments referring to Section 163.
Who could be regarded as an agent under Section 163?
Under Section 163(1) of the Income-tax Act, 1961, an agent of a non-resident could include specified persons connected with the non-resident.
These included:
- Employee or representative: A person in India employed by or on behalf of the non-resident.
- Business connection: A person in India having a business connection with the non-resident.
- Income recipient or intermediary: A person in India from or through whom the non-resident receives income directly or indirectly.
- Trustee: A person acting as trustee of the non-resident.
- Capital asset acquirer: Another person, whether resident or non-resident, who acquires a capital asset in India from the non-resident through a transfer.
The corresponding categories have substantially been carried into Section 306 of the Income-tax Act, 2025.
Merely dealing with a non-resident does not automatically make a person an agent. The specific statutory conditions must apply.
Are any brokers excluded from agent status?
Yes. Section 163 contained a specific exclusion for certain brokers in India.
A broker dealing with or through a non-resident broker rather than directly with a non-resident principal was not treated as an agent for those transactions when the statutory conditions were met.
Broadly, the transactions had to be conducted in the ordinary course of business, and the non-resident broker also had to be acting in the ordinary course of business rather than as a principal.
Section 306 of the Income-tax Act, 2025 contains a corresponding rule.
What is the liability of a non-resident's agent?
Agent status and tax liability should be understood together with the representative assessee provisions.
Under the earlier framework, Section 160 defined representative assessees, while Sections 161 and 163 dealt with liability and agent status in relevant cases.
Under the current Income-tax Act, 2025:
- Section 303 defines a representative assessee.
- Section 304 sets out the representative assessee's duties, responsibilities, and liability.
- Section 306 specifies who may be regarded as an agent of a non-resident.
A representative assessee can be assessed in their own name in respect of the relevant income, but the assessment is made in a representative capacity.
Tax in relation to that income can be levied and recovered from the representative assessee in accordance with the applicable provisions.
This does not mean all of the agent's personal income becomes income of the non-resident or vice versa.
What is an example of an agent?
Consider a non-resident who owns property in India and appoints a person in India to manage it and receive rental income on the non-resident's behalf.
Because the person receives income through which the non-resident derives income, the arrangement could fall within the statutory agent provisions, depending on the facts.
However, the property manager should not automatically be described as an agent for income-tax purposes merely because they manage the property.
The Assessing Officer must consider whether the statutory conditions are satisfied and provide an opportunity to be heard before formally treating the person as an agent.
How do Sections 160 and 163 differ?
Under the Income-tax Act, 1961, Section 160 and Section 163 served related but different purposes
| Aspect | Section 160 | Section 163 |
|---|---|---|
| Main purpose | Defined representative assessee | Identified agents of non-residents |
| Scope | Covered several representative situations | Focused on non-resident agents |
| Non-resident connection | Included agent of non-resident | Explained who could qualify as agent |
| Hearing requirement | Not the agent-identification rule | Required opportunity to be heard |
| Current 2025 Act equivalent | Section 303 | Section 306 |
Section 163 therefore worked with the representative assessee framework rather than operating as a standalone rule for taxing every person connected with a non-resident.
Does Section 163 apply to intangible assets?
An intangible asset does not automatically bring a person within Section 163.
The old provision included a person who acquired a capital asset in India from a non-resident through a transfer. Whether a particular intangible asset qualifies and whether it is regarded as situated in India depends on the applicable provisions and facts.
Agent status could also become relevant where a person in India was employed by the non-resident, had a qualifying business connection, acted as trustee, or was a person from or through whom the non-resident received income.
The nature of the asset alone is therefore not enough to determine whether Section 163 applied.
What should businesses dealing with non-residents check?
Businesses and individuals dealing with non-residents should first identify the nature of the relationship rather than assuming Section 163 or Section 306 applies.
Useful checks include:
- Whether you act for or on behalf of the non-resident
- Whether there is a business connection
- Whether the non-resident receives income through you
- Whether you act as trustee
- Whether you acquired a capital asset in India from the non-resident
- Which tax year the transaction relates to
- Whether the 1961 Act or 2025 Act governs that year
- Whether any notice has been issued by the Assessing Officer
Documentation should reflect the actual commercial and financial relationship.
For material cross-border transactions or a notice proposing agent status, professional tax advice can help determine the specific legal obligations.
Conclusion
Section 163 of the Income-tax Act, 1961 identified who could be treated as an agent of a non-resident. For tax years beginning on or after 1 April 2026, the corresponding rule is under Section 306 of the Income-tax Act, 2025, while earlier tax years can still refer to Section 163. NRIs should maintain proper documentation for investments, income, and related transactions in India. For investment planning, tools such as an SIP calculator and lumpsum calculators from Bajaj Finance can provide illustrative estimates but do not determine tax liability.
Explore Investment Tools
Articles and Insights
Frequently Asked Questions
Understanding Section 163
Income and representative taxation
What is the purpose of Section 163 of the Income Tax Act?
Section 163 of the Income-tax Act, 1961 identified persons who could be treated as agents of a non-resident for income-tax purposes. It covered specified employment, business, income-receipt, trusteeship, and capital-asset relationships. A person had to receive an opportunity to be heard before being treated as an agent. For tax years beginning on or after 1 April 2026, the corresponding rule is Section 306 of the Income-tax Act, 2025.
How does Section 163 affect my investment portfolio as an NRI?
Section 163 did not impose tax simply because an NRI held investments in India. Its purpose was to identify persons who could qualify as the non-resident's agent in specified circumstances. Under the current Income-tax Act, 2025, Section 306 performs that role. Your investment taxation depends separately on the type of income, residential status, applicable tax provisions, and any relevant treaty. Holding investments through an intermediary does not automatically make that intermediary your tax agent.
How does Section 163 of the Income Tax Act apply to income received on behalf of another person?
Under old Section 163, a person in India from or through whom a non-resident received income directly or indirectly could fall within the definition of an agent. That did not automatically establish liability because the statutory requirements and hearing process still applied. Under the Income-tax Act, 2025, Section 306 now identifies such agents, while Sections 303 and 304 deal with representative assessee status and the associated tax responsibilities.
What is the difference between income clubbing under Section 163 and taxation of an individual's own income?
Section 163 is not an income-clubbing provision. Under the Income-tax Act, 1961, clubbing rules were contained elsewhere and could require specified income of another person to be included in an assessee's total income. Section 163 instead identified who could be regarded as an agent of a non-resident. When an agent was assessed as a representative assessee, the relevant income was assessed in that representative capacity rather than being treated as the agent's own beneficial income.
Disclaimer
Bajaj Finance Limited ("BFL") is registered with the Association of Mutual Funds in India ("AMFI") as a distributor of third party Mutual Funds (shortly referred as 'Mutual Funds) with ARN No. 90319
BFL does NOT:
(i) provide investment advisory services in any manner or form.
(ii) carry customized/personalized suitability assessment.
(iii) carry independent research or analysis, including on any Mutual Fund schemes or other investments; and provide any guarantee of return on investment.
In addition to displaying the Mutual fund products of Asset Management Companies, some general information is sourced from third parties, is also displayed on As-is basis, which should NOT be construed as any solicitation or attempt to effect transactions in securities or the rendering any investment advice. Mutual Funds are subject to market risks, including loss of principal amount and Investor should read all Scheme/Offer related documents carefully. The NAV of units issued under the Schemes of mutual funds can go up or down depending on the factors and forces affecting capital markets and may also be affected by changes in the general level of interest rates. The NAV of the units issued under the scheme may be affected, inter-alia by changes in the interest rates, trading volumes, settlement periods, transfer procedures and performance of individual securities forming part of the Mutual Fund. The NAV will inter-alia be exposed to Price/Interest Rate Risk and Credit Risk. Past performance of any scheme of the Mutual fund do not indicate the future performance of the Schemes of the Mutual Fund. BFL shall not be responsible or liable for any loss or shortfall incurred by the investors. There may be other/better alternatives to the investment avenues displayed by BFL. Hence, the final investment decision shall at all times exclusively remain with the investor alone and BFL shall not be liable or responsible for any consequences thereof.
Investment by a person residing outside the territorial jurisdiction of India is not acceptable nor permitted.
Disclaimer on Risk-O-Meter:
Investors are advised before investing to evaluate a scheme not only on the basis of the Product labeling (including the Riskometer) but also on other quantitative and qualitative factors such as performance, portfolio, fund managers, asset manager, etc, and shall also consult their Professional advisors, if they are unsure about the suitability of the scheme before investing.
Disclosure: Bajaj Finance Limited (BFL) is a distributor of Mutual Funds with ARN - 90319 and distributes mutual funds of Bajaj Finserv Asset Management Limited (BFSAMC). BFL receives commission towards distribution of mutual fund products. BFSAMC is a group company of BFL, carrying business on arm’s length basis without any conflict of interest and in accordance with the prevailing law / regulation.
Disclaimer
Bajaj Finance Limited ("BFL") is an NBFC offering loans, deposits and third-party wealth management products.
The information BFL contained in this article is for general informational purposes only and does not constitute any financial advice. The content herein has been prepared by BFL on the basis of publicly available information, internal sources and other third-party sources believed to be reliable. However, BFL cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed.
This information should not be relied upon as the sole basis for any investment decisions. Hence, User is advised to independently exercise diligence by verifying complete information, including by consulting independent financial experts, if any, and the investor shall be the sole owner of the decision taken, if any, about suitability of the same.
Disclaimer
Mutual Fund SIP calculator may provide potential investors an approximate estimate on the maturity amount of the monthly SIP, purely based on mathematical calculation of the projected annual return rate selected by investor. However, such calculation does not factor the actual performance by the Asset Management Company (AMC) and should not be treated as any advice or assurance about the actual return of investment. Mutual Funds do not have a fixed rate of return and it is not possible to predict the rate of return. Please note that the SIP calculator are for illustrations only and do not represent actual returns which may vary depending on various factors including but not limited to actual performance, expense ratio, taxation, exit load (if any), etc.