Chapter XVII - Special Provisions Relating to Certain Persons
Section 305
Section 305: right of a representative assessee to recover tax paid
Section 305 protects a representative assessee financially: if they pay tax on behalf of someone else, they can recover it from that person, or hold back enough money already in their hands to cover the liability - with a formal certificate route for resolving disputes over how much to hold back.
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This article is for general information. Refer to the Income-tax Act, 2025 as amended by the Finance Act, 2026 and the Taxation and Other Laws (Amendment) Act, 2026 for the official provisions. If you need professional advice for your situation, contact Bizeneed.
Statutory text
Bare law
(1) Every representative assessee who, as such, pays any sum under this Act, shall be entitled to recover the sum so paid from the person on whose behalf it is paid, or to retain out of any moneys that may be in his possession or may come to him in his representative capacity, an amount equal to the sum so paid.
(2) Any representative assessee, or any person who apprehends that he may be assessed as a representative assessee, may retain out of any money payable by him to the person on whose behalf he is liable to pay tax (hereinafter in this section referred to as the principal), a sum equal to his estimated liability under this Chapter.
(3) In the event of any disagreement between such principal and such representative assessee or person with regard to the amount to be so retained as referred to in sub-section (2), such representative assessee or person may secure from the Assessing Officer a certificate stating the amount to be so retained pending final settlement of the liability, and the certificate so obtained shall be his warrant for retaining that amount.
(4) The amount recoverable from such representative assessee or person at the time of final settlement shall not exceed the amount specified in such certificate, except to the extent to which such representative assessee or person may at such time have in his hands additional assets of the principal.
Introduction
A representative assessee who pays an amount under the Act may recover it from the represented person or retain an equal amount from money held in that capacity. A person who anticipates representative assessment may also retain an estimated liability from money payable to the principal.
Key takeaways
Recover or retain tax already paid
After paying in a representative capacity, the representative may recover the amount from the principal or retain an equal amount from money held for that person.
Estimated liability may be reserved
A representative, or someone anticipating that status, may retain an estimated tax amount out of money payable to the principal.
Disputes can go to the Assessing Officer
If the principal disagrees with the retained amount, the representative or prospective representative may obtain an Assessing Officer's certificate stating what may be retained pending final settlement.
Recovering or retaining tax already paid
A representative assessee who, in that capacity, pays any sum under the Act is entitled to recover the amount from the person on whose behalf it was paid, or to retain out of any money in his possession (or that comes to him) in his representative capacity, an amount equal to the sum paid.
Retaining money in advance for an anticipated liability
A representative assessee, or a person who anticipates being assessed as one, may retain out of any money payable by him to the person on whose behalf he is liable to pay tax (called "the principal") a sum equal to his estimated liability under this Chapter.
Resolving disagreement through an Assessing Officer's certificate
If the principal and the representative assessee (or prospective representative assessee) disagree on how much should be retained, the representative assessee or person may obtain a certificate from the Assessing Officer stating the amount to be retained pending final settlement of the liability - that certificate is his warrant for retaining that amount.
At final settlement, the amount recoverable from the representative assessee or person cannot exceed the amount stated in the certificate, except to the extent he then holds additional assets of the principal.
Step-by-step flow for recovering tax under Section 305
- 1
Has the representative assessee already paid a sum under the Act in that capacity?
- Yes: Under Section 305(1), recover it from the person on whose behalf it was paid, or retain an equal amount from moneys held in the representative capacity.
- No, payment is still to come: Go to the next step.
- 2
Estimate the liability and retain it
Under Section 305(2), a representative assessee, or a person who expects to be assessed as one, may retain out of money payable to the principal a sum equal to the estimated liability under this Chapter.
- 3
Does the principal disagree with the amount retained?
- Yes: Apply to the Assessing Officer for a certificate of the amount to be retained pending final settlement (Section 305(3)). Go to the next step.
- No: Go to the next step.
- 4
At final settlement, cap the amount recoverable
Under Section 305(4), the amount recoverable from the representative assessee cannot exceed the amount in the certificate, except to the extent he then holds additional assets of the principal.
Practical checklist
Do
- Document tax paid or estimated in the representative capacity.
- Seek the Assessing Officer certificate if the principal disputes the amount to be retained.
Avoid
- Retain an unlimited sum from a principal’s funds without linking it to the representative tax liability.
Illustrative example
Worked example: an agent retaining tax from a non-resident's money
Hypothetical facts (illustration only, not a real taxpayer): An Indian firm treated as agent of a non-resident owes the non-resident ₹10,00,000 (assumed). The firm estimates its liability as representative assessee at ₹2,50,000; the non-resident says ₹1,00,000 is enough. All figures are assumed.
Disagreement
The firm applies under Section 305(3), and the Assessing Officer issues a certificate for ₹2,00,000 (assumed).
Retention
The firm retains ₹2,00,000 and pays the non-resident ₹10,00,000 − ₹2,00,000 = ₹8,00,000. The certificate is its warrant for retaining that amount.
Final settlement
The liability is finally settled at ₹2,40,000 (assumed). The firm holds no other assets of the non-resident.
Cap
Under Section 305(4), no more than ₹2,00,000 can be recovered from the firm. The remaining ₹2,40,000 − ₹2,00,000 = ₹40,000 cannot be recovered from it.
Outcome
- The firm's exposure is capped at the certified ₹2,00,000, which it has retained.
- The ₹40,000 balance is not recoverable from the firm; the Assessing Officer may proceed against the non-resident directly under Section 304(3).
Frequently asked questions
Can a representative assessee get money back after paying someone else's tax?
Yes - Section 305(1) lets him recover the sum paid from the person on whose behalf it was paid, or retain an equal amount out of any money of that person already in, or coming into, his hands.
What if the representative assessee and the principal disagree on how much to withhold?
The representative assessee or prospective representative may approach the Assessing Officer under Section 305(3) for a certificate fixing the amount to be retained pending final settlement; that certificate then caps the amount recoverable at final settlement, subject to any additional assets of the principal held at that time.
Need help applying this provision to your situation?
Talk to our tax team about representative assessee liabilityLast updated 9 October 2026