Recovery of tax in pursuance of agreements with foreign countries

Section 418 — RECOVERY OF TAX IN PURSUANCE OF AGREEMENTS WITH FOREIGN COUNTRIES

Section 418 of the Income-tax Act, 2025 corresponds to s. 228A of the Income-tax Act, 1961.

STATUTORY ARCHITECTURE

Section 418 gives effect to agreements entered into by the Central Government with the Government of a country outside India for recovery of income-tax under this Act and the corresponding law in force in that country. It works in both directions. Sub-section (1) deals with inbound requests: tax due under the foreign law is recovered in India through a Tax Recovery Officer. Sub-section (2) deals with outbound requests: a certificate for tax in default under this Act may be forwarded to the Board for action under the agreement.

KEY ELEMENTS

• Inbound certificate, s. 418(1): the foreign Government, or an authority under it specified in the agreement, sends the Board a certificate for recovery of tax due under the corresponding law from (a) a resident, or (b) a person having any property in India.
• Forwarding: the Board may forward the certificate to a Tax Recovery Officer having jurisdiction over the resident or within whose jurisdiction the property is situated.
• Recovery: that officer recovers the amount in the manner in which he would recover the amount in a certificate drawn up by him under s. 413.
• Remittance: the officer remits the sum recovered to the Board after deducting his expenses in connection with the recovery proceedings.
• Outbound certificate, s. 418(2): where an assessee in default or deemed in default in paying tax (a) is a resident of an agreement country, or (b) has any property in that country, the Tax Recovery Officer may forward to the Board a certificate drawn up by him under s. 413.
• Board's action: the Board may take such action as it deems appropriate having regard to the terms of the agreement with that country.

CHANGES FROM THE 1961 ACT

The section corresponds to s. 228A of the 1961 Act and is substantively the same. The visible changes are that the reference to a certificate drawn up under s. 222 of the 1961 Act becomes s. 413, and that the persons covered in each sub-section are set out as separate clauses (a) and (b), with the officer's duties in sub-section (1) lettered (i) and (ii) in place of (a) and (b).

PRACTITIONER NOTES

• The inbound route depends on the existence of an agreement covering recovery and on a certificate from the foreign Government or the authority specified in that agreement.
• Forwarding by the Board is discretionary ("may"); once forwarded, the Tax Recovery Officer "shall" proceed to recover.
• Only the net amount, after the officer's recovery expenses, is remitted to the Board.
• The outbound route applies only to an assessee in default or deemed in default, and forwarding is at the Tax Recovery Officer's discretion.

CROSS-REFERENCES

• s. 413 — the certificate drawn up by the Tax Recovery Officer, whose recovery manner applies under sub-section (1) and which is forwarded under sub-section (2).
• s. 228A of the 1961 Act — the corresponding provision.