Section 418: recovery of tax under agreements with foreign countries

Introduction

Section 418 allows tax recovery through an agreement between India and another country. It describes both a foreign tax certificate sent to India and an Indian recovery certificate for an assessee resident in, or holding property in, the partner country.

Key takeaways

Recovering foreign tax dues in India - Section 418(1)

Where the Central Government has an agreement with another country's government for recovery of income-tax under this Act and that country's corresponding law, and that country's government (or an authority specified in the agreement) sends the Board a certificate for recovery of tax due under its law from a resident, or from a person having property in India, the Board may forward the certificate to a Tax Recovery Officer with jurisdiction over that resident or property.

That Tax Recovery Officer then recovers the amount specified in the certificate in the same manner as he would recover an amount specified in a certificate he himself drew up under Section 413, and remits the sum recovered to the Board after deducting his expenses in connection with the recovery proceedings.

Sending India's certificate abroad - Section 418(2)

Where an assessee who is in default or deemed in default is a resident of a country with which the Central Government has such a recovery agreement, or has property in that country, the Tax Recovery Officer may forward to the Board a certificate drawn up under Section 413, and the Board may take such action on it as it deems appropriate, having regard to the terms of the agreement with that country.

Applying Section 418 in practice

Two directions. Where an agreement covers recovery of income-tax under corresponding foreign law from an Indian resident or a person with property in India, section 418 provides for a certificate sent to the Board by the foreign government or the authority specified in the agreement, followed by Indian recovery machinery. For Indian tax due from a person resident in or holding property in the partner country, the Tax Recovery Officer may send a section 413 certificate to the Board for action under the agreement. The treaty or agreement and the competent-authority communication are essential; residence abroad alone is not enough.

Hypothetical example

A foreign revenue authority sends a qualifying request through the agreed channel; India's Tax Recovery Officer may then use the statutory machinery.

Step-by-step flow for cross-border recovery under Section 418

1. 1

   Has the Central Government entered into an agreement with the other country for recovery of income-tax under this Act and that country's corresponding law?

   • No: Section 418 does not apply.
   • Yes: Go to the next step.
2. 2

   Which way does the recovery run?

   • The other country wants tax recovered in India: Go to the next step.
   • India wants tax recovered abroad: Go to step 5.
3. 3

   Inbound: has a certificate been sent to the Board?

   The other Government, or an authority specified in the agreement, sends the Board a certificate for tax due under its corresponding law from a resident, or from a person having property in India. The Board may forward it to a Tax Recovery Officer with jurisdiction over the resident or where the property is situated.

4. 4

   Inbound: recovery and remittance

   The Tax Recovery Officer recovers the amount as if it were in a certificate he drew up under Section 413, and remits the sum recovered to the Board after deducting his expenses of the recovery proceedings.

   • Inbound recovery done: The inbound process ends here.
5. 5

   Outbound: is the defaulting assessee resident in, or holding property in, an agreement country?

   If so, the Tax Recovery Officer may forward his Section 413 certificate to the Board, which may act on it as it deems appropriate under the terms of the agreement (Section 418(2)).

Practical checklist

Frequently asked questions