Section 306 · Special persons
Section 306 of the Income-tax Act, 2025 — Who May Be Regarded as Agent of a Non-Resident
By CA Rajat Agrawal
Updated 05 Jul 2026
Chapter XVII
📜 What the law says — Section 306, Income-tax Act 2025
306. (1) For the purposes of this Act, “agent”, in relation to a non-resident, includes—
(a) any person in India—
(i) who is employed by or on behalf of the non-resident; or
(ii) who has any business connection with the non-resident; or
(iii) from or through whom the non-resident is in receipt of any income,
whether directly or indirectly; or
(iv) who is the trustee of the non-resident;
(b) any other person who, whether a resident or non-resident, has acquired
by means of a transfer, a capital asset in India.
(2) A broker in India who, in respect of any transactions, does not deal directly with
or on behalf of a non-resident principal but deals with or through a non-resident
broker shall not be deemed to be an agent under this section in respect of such
transactions, if the following conditions are fulfilled:—
(a) the transactions are carried on in the ordinary course of business through
the first-mentioned broker; and
(b) the non-resident broker is carrying on such transactions in the ordinary
course of his business and not as a principal.
(3) A person shall not be treated as the agent of a non-resident unless he has had an
opportunity of being heard by the Assessing Officer as to his liability to be treated
as such.
(4) For the purposes of this section, “business connection” shall have the meaning
assigned to it in section 9(9)(a).
Charge of tax where share of beneficiaries unknown.
In plain language
What Section 306 says in plain English
When a non-resident earns income that is taxable in India but is not present here to be assessed, the Income-tax Department needs someone in India it can hold responsible for that tax. Section 306 of the Income-tax Act, 2025 answers a single question: who in India can be treated as the "agent" of that non-resident? The person so treated becomes a representative assessee under Section 303 and is assessed on, and made liable for, the non-resident's Indian income. Section 306 is the successor to Section 163 of the Income-tax Act, 1961, and the wording has been carried forward almost unchanged.
Who can be treated as an agent
Under Section 306(1), "agent" in relation to a non-resident includes any person in India who falls in any of these categories:
- Employment link — a person who is employed by or on behalf of the non-resident.
- Business connection — a person who has any business connection with the non-resident (the phrase carries the meaning given in Section 9).
- Income conduit — a person from or through whom the non-resident is in receipt of any income, whether directly or indirectly.
- Trustee — a person who is the trustee of the non-resident. This limb is important for trusts and charitable structures: an Indian trustee holding property or funds for a non-resident settlor or beneficiary can be roped in as the agent.
- Transferee of a capital asset — any other person, whether resident or non-resident, who has acquired a capital asset in India by means of a transfer (typically the buyer of Indian shares or property from a non-resident).
The list is inclusive, so it captures a wide range of business, fiduciary and transactional relationships. Being a mere customer or having an isolated dealing is generally not enough — there must be a real connection of the kind listed.
The broker exception
Section 306(2) protects genuine intermediaries. A broker in India who, in the ordinary course of business, deals with a non-resident broker (not the non-resident principal directly) is not deemed to be an agent, provided the non-resident broker is also acting in the ordinary course of business and not as a principal. This keeps normal broker-to-broker market transactions outside the agency net.
Right to be heard — a key safeguard
Section 306(3) gives an essential protection: no person can be treated as the agent of a non-resident unless the Assessing Officer first gives that person an opportunity of being heard on whether he is liable to be treated as an agent. An order treating someone as an agent without a proper hearing is liable to be quashed.
How it interacts with related sections
- Section 303 (Representative assessee) — the agent identified under Section 306 becomes a representative assessee for the non-resident's Section 9 income.
- Section 304 (Liability of representative assessee) — the agent is assessed in the same manner and to the same extent as the non-resident would have been.
- Section 305 (Right to recover tax paid) — the agent can retain or recover from the non-resident's money the tax he is made to pay, so he is not left out of pocket.
- Section 9 (Income deemed to accrue in India) and its "business connection" test define the very income for which an agent can be assessed.
Practical implications
- Buyers beware: if you buy shares or property in India from a non-resident, you may be treated as the agent for the seller's capital-gains tax — over and above your TDS obligations under Section 194-IA / Section 195.
- Trustees: Indian trustees administering assets for non-resident settlors or beneficiaries can be assessed as agents; charitable and private trusts with an offshore link should map their exposure.
- Business partners: Indian entities with a genuine business connection to a non-resident should assess whether they could be treated as agents, and price this risk into contracts.
- Protect yourself: insist on the hearing under Section 306(3), and use the recovery right under Section 305 and indemnity clauses so the ultimate burden falls on the non-resident.
💡 Example
Worked example 1 — Buyer of Indian shares. Mr. Rahul, a resident, buys unlisted Indian company shares from Mr. Lee, a non-resident, for ₹2 crore. Mr. Lee's capital gain is ₹80 lakh, taxable in India. Because Rahul is a person who has acquired a capital asset in India by transfer, the Assessing Officer can treat him as Lee's agent under Section 306(1). After giving Rahul an opportunity of being heard, the AO assesses the ₹80 lakh gain in Rahul's hands as representative assessee. If the tax works out to, say, ₹10 lakh, Rahul pays it but under Section 305 can recover that ₹10 lakh from the sale consideration payable to Lee (which is why buyers hold back tax or deduct TDS under Section 195).
Worked example 2 — Indian trustee of a non-resident. A private trust in Mumbai holds a rental property worth ₹5 crore for the benefit of Mr. Khan, a non-resident beneficiary, earning ₹36 lakh rent a year taxable in India. As trustee of the non-resident, the Indian trustee falls within Section 306(1) and can be treated as agent. After a hearing, the trustee is assessed on the ₹36 lakh and pays the resulting tax out of the trust's rental income before distributing the balance to Mr. Khan.
A short story. Priya runs a small consultancy in Pune and helps a Singapore firm collect fees from Indian clients, routing the money through her account. When the Singapore firm ignored its Indian tax notices, the Assessing Officer proposed treating Priya as its agent under Section 306 because income was received "through" her. Priya attended the hearing under Section 306(3), showed that she was only a paying conduit for a defined slice of income, and was assessed only on that portion — which she then recovered from the firm's money under Section 305, thanks to an indemnity clause in her contract. The lesson: the hearing right and the recovery right together turned a scary notice into a manageable, cost-neutral event.
| Sub-section of Section 306 | What it covers | Practical effect |
|---|
| 306(1)(a) — Employment / business connection / income conduit / trustee | Persons in India linked to the non-resident by employment, business connection, receipt of income, or as trustee | Any of these can be named the agent (representative assessee) |
| 306(1)(b) — Transferee of capital asset | Any person (resident or non-resident) who acquired a capital asset in India by transfer | Buyer can be assessed for the non-resident seller's capital gains |
| 306(2) — Broker exception | Indian broker dealing with a non-resident broker in the ordinary course of business (not the principal) | Such broker is NOT deemed to be an agent |
| 306(3) — Opportunity of being heard | Mandatory hearing before the Assessing Officer | No one can be treated as agent without a hearing; order otherwise is invalid |
| 306(4) — Meaning of "business connection" | Adopts the meaning given in Section 9 | Defines the scope of the "business connection" limb |
Related sections
Section 303 — Representative assessee (who is treated as one) Section 304 — Liability of a representative assessee Section 305 — Right of representative assessee to recover tax paid Section 9 — Income deemed to accrue or arise in India / business connection Section 195 — TDS on payments to non-residents Section 307 — Charge of tax where share of beneficiaries is unknown
Frequently asked questions
What is Section 306 of the Income-tax Act, 2025 about?
It defines who in India can be treated as the agent of a non-resident, so that the non-resident's Indian income can be assessed and taxed in the agent's hands as a representative assessee. It replaces Section 163 of the Income-tax Act, 1961.
Can I be treated as an agent just because I bought property or shares from a non-resident?
Yes. Section 306(1) treats any person who acquires a capital asset in India by transfer as a potential agent, so the buyer can be assessed for the non-resident seller's capital-gains tax. This is separate from, and in addition to, your TDS duty under Section 195.
Does the Assessing Officer have to hear me before treating me as an agent?
Yes. Section 306(3) makes it mandatory that you be given an opportunity of being heard on whether you are liable to be treated as an agent. An order passed without such a hearing can be set aside.
Is a trustee of a non-resident covered by Section 306?
Yes. A person who is the trustee of a non-resident is expressly listed in Section 306(1), so Indian trustees holding assets or income for non-resident settlors or beneficiaries can be treated as the agent and assessed accordingly.
If I pay tax as an agent, can I recover it from the non-resident?
Yes. Section 305 gives the representative assessee the right to retain out of, or recover from, the non-resident's money any tax paid on the non-resident's behalf, so the ultimate burden falls on the non-resident.
Are stockbrokers automatically treated as agents of non-residents?
No. Section 306(2) exempts an Indian broker who deals with a non-resident broker in the ordinary course of business, provided the non-resident broker also acts in the ordinary course and not as a principal.
What was the corresponding section under the old law?
Section 306 of the Income-tax Act, 2025 corresponds to Section 163 of the Income-tax Act, 1961, and the substance of the provision has been retained.
C
CA Rajat Agrawal
Chartered Accountant, EaseValue · Reviewed 05 Jul 2026
This explainer is prepared and reviewed by EaseValue's tax team, based on the text of the Income-tax Act, 2025 (as amended by the Finance Act, 2026).
Disclaimer: This page explains the law in general terms for education and is not professional advice. The Income-tax Act, 2025 takes effect from 1 April 2026; provisions, thresholds and interpretations may change. Please confirm your specific position with our team before acting.
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