Follow us on:
Non-Resident Taxation Series | June 2026
When a non-resident earns income from India but has no direct presence here, the law appoints someone in India to stand in their place. Sections 304 and 306 of the Income Tax Act 2025 define who that person is, what their liability is, and crucially, what protects an independent Indian broker from being dragged into this role.
Non-Resident Taxation Series – fiscalzenith.com
You are reading Article 8: Representative Assessee and Agent: Sections 304 and 306.
Also in this series: Residential Status – Section 6 | Scope of Income – Section 5 | Deemed Income – Section 9 | Tax Rates – Sections 207 to 217 | TDS on Non-Residents | DTAA – Section 159 | NRI Provisions | PE | ITR Filing
Also in this series: Residential Status – Section 6 | Scope of Income – Section 5 | Deemed Income – Section 9 | Tax Rates – Sections 207 to 217 | TDS on Non-Residents | DTAA – Section 159 | NRI Provisions | PE | ITR Filing
Table of Contents
Section 304
Representative assessee. Corresponds to Section 160 of the 1961 Act. Person who represents the non-resident for income tax purposes.
Section 306
Agent of non-resident. Corresponds to Section 163 of the 1961 Act. Includes employer, business connection, income receiver, trustee, and capital asset transferee.
Section 306(2)
Broker protection. Indian brokers dealing through a non-resident broker (not as principal) are not treated as agents of the non-resident.
Section 306(3)
No person can be treated as an agent without being given an opportunity of being heard by the Assessing Officer.
Part IThe Problem These Provisions Solve
A non-resident earning income from India may have no direct presence here. The Income Tax Department cannot easily compel a foreign entity to file returns, respond to notices, or pay tax. So the law identifies certain persons in India who have a connection with the non-resident and assigns them the obligation to represent the non-resident and bear the same responsibilities.
These persons are called representative assessees or agents. Sections 304 and 306 of the Income Tax Act, 2025 (corresponding to Sections 160 and 163 of the Income Tax Act, 1961 respectively) define and govern them.
Part IIRepresentative Assessee: Section 304
Corresponding to Section 160 of the 1961 Act.
A representative assessee is a person who is responsible for paying tax and complying with the provisions of the Act on behalf of another person. For a non-resident, the representative assessee is typically the person in India who manages the non-resident’s income, assets, or affairs: a trustee, guardian, manager, or any other person in whose hands the non-resident’s income comes.
A representative assessee is subject to the same duties, responsibilities, and liabilities as the non-resident principal. They must file returns, respond to notices, and pay tax. An assessment made on a representative assessee in their representative capacity follows the same principles as if it were made on the non-resident directly.
Part IIIAgent of Non-Resident: Section 306
Corresponding to Section 163 of the 1961 Act.
“Agent” in relation to a non-resident means a person in India who bears any of the following relationships [Section 306(1)(a)]:
- Is employed by or on behalf of the non-resident
- Has a business connection with the non-resident as defined in Section 9(9)(a)
- Receives any income belonging to the non-resident, directly or indirectly, from or through any source
- Is the trustee of the non-resident
Also included [Section 306(1)(b)]: any person, whether resident or non-resident, who has acquired by transfer a capital asset situated in India.
Example: An Indian company is the exclusive distributor of a foreign company’s products in India and habitually concludes contracts on behalf of the foreign company. The Indian distributor has a business connection with the foreign non-resident under Section 9(9)(a). It can be treated as an agent of the foreign non-resident under Section 306 and assessed in respect of the non-resident’s Indian income.
Part IVProtection for Independent Brokers: Section 306(2)
A broker in India who does not deal directly with or on behalf of a non-resident principal, but instead deals with or through a non-resident broker, is not treated as an agent under this section, provided BOTH of the following conditions are satisfied [Section 306(2)]:
(a) The transactions are carried on in the ordinary course of business through the Indian broker, AND
(b) The non-resident broker is carrying on such transactions in the ordinary course of his business and NOT as a principal
The “not as a principal” condition is critical. The non-resident broker must be acting as an agent or intermediary, not taking its own position. If the non-resident broker trades as a principal and then passes on the trade to the Indian broker, the protection does not apply to the Indian broker.
Example: A US pension fund engages a US broker to route its Indian stock trades. The US broker, acting purely as an agent of the pension fund and NOT on its own account, channels those orders to a SEBI-registered Indian broker. The Indian broker deals only with the US broker. Both conditions are satisfied: the Indian broker acts in ordinary course, and the US broker acts as agent (not principal). The Indian broker is protected by Section 306(2) and is NOT treated as the agent of the non-resident pension fund.
This protection is vital for the functioning of Indian capital markets. If every Indian broker became a deemed agent of every foreign client, the compliance burden would be unworkable.
Part VDue Process Before Designating an Agent: Section 306(3)
No person can be treated as an agent of a non-resident without being given an opportunity of being heard. Before the Assessing Officer treats someone as an agent under Section 306, they must serve a notice and give that person an opportunity to respond and contest the designation.
This is a procedural safeguard. A person unexpectedly held liable as an agent of a non-resident has the right to contest that position before the AO makes the final determination.
Part VIExtent of Liability
Both the representative assessee (Section 304) and the agent (Section 306) are liable to the same extent as the non-resident for filing returns, paying advance tax, responding to assessment proceedings, and paying tax assessed.
Their liability is limited to the assets or income they hold or receive on behalf of the non-resident. They cannot be held personally liable beyond the value of the non-resident’s assets in their hands at any relevant time.
If you manage assets or income for a non-resident in India
- If you are a trustee, property manager, or fund manager for a non-resident, you are a representative assessee under Section 304. Ensure you comply with Indian tax obligations on behalf of the non-resident including filing returns and paying advance tax where applicable.
If you are an Indian company with a distribution or licensing agreement with a foreign company
- Assess whether you have a business connection under Section 9(9)(a). If you habitually conclude contracts on behalf of the foreign company or maintain stock for them in India, you may be their agent under Section 306.
- If treated as an agent, you are assessable in respect of the foreign company’s Indian income. Structure your arrangement as an independent distributor acting for your own account rather than as a dependent agent to avoid this.
If you are an Indian stockbroker receiving orders from foreign clients
- You are protected by Section 306(2) if you deal through a non-resident broker who acts as agent (not principal) and you act in ordinary course of business. Document the arrangement clearly.
- If the foreign entity deals directly with you without an intermediary non-resident broker, the Section 306(2) protection may not apply and you could be treated as the agent.
If you receive a notice proposing to treat you as an agent
- Section 306(3) gives you the right to be heard before the designation is finalised. Submit a written response contesting the designation with reasons if you believe it is incorrect.
- Do not ignore such a notice. Failure to respond can result in the AO proceeding ex-parte and treating you as the agent with full liability consequences.
Wrapping Up
The representative assessee and agent provisions exist to ensure the Indian tax system always has a reachable point of contact for every non-resident earning income from India. If you have a meaningful relationship with a non-resident’s Indian income or assets, whether as employer, trustee, business connection, or income receiver, you may find yourself in this role. Knowing the boundaries, the protections for independent brokers under Section 306(2), and the due process right under Section 306(3) prevents expensive surprises.
Frequently Asked Questions
Potentially yes. Under Section 306(1)(a)(iii), a person from or through whom a non-resident receives any income directly or indirectly qualifies as an agent. If the funds you hold include income earned in India (such as rent from Indian property, interest, or dividends), and you distribute that income to the non-resident, you may be treated as an agent and assessed on the non-resident’s Indian income. You should ensure proper TDS is deducted on Indian income before remitting to the non-resident client, and consider whether you need to be registered as a representative assessee with the tax department.
Section 306(1)(b) specifically includes any person who has acquired by transfer a capital asset situated in India. So yes, as the buyer of property from a non-resident, you can be treated as the non-resident’s agent for tax purposes. This is why buyers of property from non-residents must deduct TDS at the applicable rate at the time of purchase. If you deduct and deposit TDS correctly, the practical exposure as an agent is significantly reduced.
Disclaimer: For informational and educational purposes only. Based on the Income Tax Act 2025 (30 of 2025), Income Tax Rules 2026, and provisions as amended by the Finance Act 2026, current as of June 2026. Does not constitute legal or tax advice.
