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Taxation of Agents

Taxation of Agents

An 'agent' is a person who agrees and is authorized to act on behalf of another. This another person is known as 'Principal' who authorizes and empowers the agent as his representative to carry out his legal acts. When the agent and the principal mutually agree, an 'agency relationship' starts between them. This relationship empowers the agent to carry out business transactions on behalf of the principal. Infact while dealing with the third parties, the agent steps into the shoes of his principal and all his legal acts are binding on the principal.

An agent can be an individual, a company or any association of individuals. The document which empowers the agent is known as 'Power of Attorney', which is executed by the principal in favour of the agent. When the power of attorney relates to a particular transaction and for a specific purpose, it is known as 'Specific Power of Attorney'. Whereas, when power of attorney relates to transactions in general, it is known as 'General Power of Attorney'. The power of attorney may or may not be registered.

An agent enjoys all the powers of the principal and binds the principal for all his legal acts. He can sue the third parties in the name of the principal and has a right to get reimbursement for the expenses incurred by him related to the business. But at the same time, an agent should act as per the powers vested in him and should act in the best interests of his principal. He should maintain proper accounts of all transactions and submit them to the principal.

Provisions for Taxation of Agents

An agent is subjected to taxation under the provisions of the Income Tax Act,1961. It is the umbrella Act for all the matters relating to income tax and empowers the Central Board of Direct Taxes (CBDT) to formulate rules (The Income Tax Rules,1962) for implementing the provisions of the Act. The CBDT is a part of Department of Revenue in the Ministry of Finance. It has been charged with all the matters relating to various direct taxes in India and is responsible for administration of direct tax laws through the Income Tax Department. The Income Tax Act is subjected to annual amendments by the Finance Act, which mentions the 'rates' of income tax and other taxes for the corresponding year.

An agent may be taxed depending upon the category of "persons" in which it falls under the Income Tax Act. The term "person" under the Act includes :

  • Individuals

  • Corporates

  • Firms

  • Association of Persons or Body of Individuals

  • Hindu Undivided Families

Assessment of non-residents through Agents

A non-resident may be assessed to tax in India either directly or through agents. Under the Income Tax act (Section 163), there is a provision to assess a non-resident through his agent due to the inherent difficulties in ensuring his physical presence during the assessment proceedings and the possibilities of effecting recovery of the due taxes.

Persons in India who may be treated as 'agent' of a non-resident are :

  • Employee or trustee of the non-resident

  • Any person who has any business connection with the non-resident

  • Any person from or through whom the non-resident is in receipt of any income

  • Any person who has acquired a capital asset in India from the non-resident.

If a person is assessed as an agent, he may retain out of any money payable by him to the person residing outside India on whose behalf he is liable to pay tax (the principal), a sum equal to his estimated liability. In case of any disagreement between the principal and the agent regarding the amount to be retained, the agent may secure from the assessing Officer a certificate stating the amount to be retained pending final settlement of the liability, and the certificate obtained will be his warrant for retaining that amount.

Wealth Tax and Agents

Wealth tax is a direct tax, which is charged on the net wealth of the assessee. 'Assessee' means a person by whom the wealth tax or any other sum of money is payable under the provisions of the Wealth Tax Act, and includes the legal representative, executor or administrator of a deceased person and a person deemed to be an agent of a non-resident.


Other Categories

Taxation of Individuals
Who is liable to pay income tax
Sources of Income
Income from Salaries
Income from Capital Gains
Income from House property
Income from Profits & gains of business or profession
Income from other sources
Taxation of Partnerships
Customs Duties (Import Duty and Export Tax)
Wealth Tax
Taxation of Corporates
Taxation of Agents
Excise Duty
Permanent Account Number (PAN)
Taxation of other forms of business entities
Taxation of Trusts
Taxation of Small Scale Industries
Joint Venture Companies
Cooperative Societies
Taxation of Representative offices
Service Tax
Value Added Tax (VAT)


India has a well developed tax structure. The power to levy taxes and duties is distributed among the three
tiers of Government, in accordance with the provisions of the Indian Constitution. The main taxes/duties that
the Union Government is empowered to levy are:- Income Tax (except tax on agricultural income,
which the State Governments can levy), Customs duties, Central Excise and Sales Tax and Service Tax. The principal taxes levied by the State Governments are:- Sales Tax (tax on intra-State sale of goods), Stamp Duty (duty on transfer of property), State Excise (duty on manufacture of alcohol), Land Revenue (levy on land used for agricultural/non-agricultural purposes), Duty on Entertainment and Tax on Professions & Callings. The Local Bodies are empowered to levy tax on properties (buildings, etc.), Octroi (tax on entry of goods for use/consumption within areas of the Local Bodies), Tax on Markets and Tax/User Charges for utilities like water supply, drainage, etc.

In the wake of economic reforms, the tax system in India has under gone a radical change, in line with the
liberal policy. Some of the changes include:- rationalization of tax structure; progressive reduction in peak
rates of customs duty; reduction in corporate tax rate; customs duties to be aligned with ASEAN levels;
introduction of value added tax; widening of the tax base; tax laws have been simplified to ensure better compliance. Tax policy in India provides tax holidays in the form of concessions for various types of investments. These include incentives to priority sectors and to industries located in special area/ regions. Tax incentives are available also for those engaged in development of infrastructure.