By CA Surekha S Ahuja
No panic. No noise. Just a quiet change in recovery law that every NRI with Indian assets should understand.
The proposed Income-tax Bill, 2025 introduces Clause 422, a provision that subtly but decisively reshapes the manner in which outstanding tax dues may be recovered. While the authority to recover taxes is not new, the speed and sequencing under the new framework marks a material shift, particularly for Non-Resident Indians (NRIs) who manage Indian assets and compliance remotely.
This note is intended as a professional advisory with an alert element — to help NRIs understand the change clearly, assess their exposure calmly, and take preventive steps where required.
Understanding Clause 422 — What Has Really Changed
Clause 422 consolidates and modernises the recovery provisions that earlier existed across multiple sections of the Income-tax Act, 1961. The most significant change is procedural compression.
Once a tax demand becomes legally enforceable, the tax authorities may initiate recovery actions such as attachment of bank accounts, fixed deposits, rental receivables, or immovable property, where recoverable dues exceed the prescribed threshold.
Importantly, this does not remove the taxpayer’s right to appeal, seek rectification, or obtain relief through due process. However, the practical time gap between demand crystallisation and recovery action has reduced.
Why This Matters More for NRIs
Most NRIs manage Indian tax matters in good faith, relying heavily on tax deducted at source and third-party reporting. While this model works in most cases, it also means that system-driven mismatches, rather than intentional defaults, are the primary source of exposure.
Typical areas where NRIs encounter issues include rental income where TDS under Section 195 is short or incorrectly deposited, property sales where TDS at 30 percent exceeds actual capital gains, refunds withheld due to automated verification or risk flags, and small interest or penalty demands that remain unnoticed on the e-filing portal.
Under Clause 422, unresolved mismatches — not intent — may lead to faster recovery actions.
How Risk Commonly Builds Up in Practice
Experience shows that recovery exposure rarely begins with large tax defaults. More often, it starts with a small difference, an untracked demand, or a pending clarification. In a fully digital environment, silence or delay is interpreted as non-response, allowing the system to move forward.
Clause 422 does not change the law’s intent; it changes the tempo.
Advisory Safeguards NRIs Should Implement
Periodic reconciliation of Form 26AS and AIS is now essential, not optional. This ensures that income, TDS credits, and system records are aligned and that no demand remains unnoticed.
Where income has been under-reported inadvertently or TDS credit has been missed, ITR-U provides a structured and lawful route to regularise matters. Used timely, it prevents minor gaps from maturing into recovery proceedings.
Equally important is maintaining complete DTAA documentation, including a valid Tax Residency Certificate and Form 10F. Proper treaty compliance often reduces excess TDS and avoids refund-driven mismatches that later convert into demands.
What Clause 422 Does Not Mean
Clause 422 does not permit arbitrary attachment of assets. It does not override appellate remedies or dilute taxpayer protections. Compliant taxpayers remain fully safeguarded.
The provision simply reflects an expectation of timely response and data accuracy in a technology-driven tax ecosystem.
Professional Perspective
Clause 422 reinforces a fundamental professional principle:
In a real-time tax system, timely reconciliation is the most effective form of asset protection.
For NRIs holding Indian real estate, rental portfolios, bank deposits, or repatriation-linked investments, compliance discipline is now a strategic necessity, not a procedural formality.
Conclusion
There is no cause for alarm.
There is, however, a clear reason for attentiveness.
Clause 422 does not introduce a new power; it reduces the cushion of time that taxpayers previously relied upon. NRIs who monitor, reconcile, and regularise their tax positions remain on solid ground. Those who delay may find that recovery mechanisms move faster than expected.
Calm compliance continues to be the strongest safeguard.
