The Indian government has introduced a significant amendment through the Finance Bill, 2024, which has led to confusion about the necessity of tax clearance certificates for Indians travelling abroad. Here is the accurate clarification:
Scope of the Amendment
The proposed amendment does not require every Indian citizen to obtain a tax clearance certificate. Instead, only specific individuals who meet certain criteria are required to secure this certificate.
Who Needs a Tax Clearance Certificate?
The certificate is required for individuals who fall under the following categories:
- Involvement in Serious Financial Irregularities: Individuals suspected of serious financial misconduct, whose presence is crucial for investigations under the Income-tax Act or the Wealth-tax Act, and where it is likely that a tax demand will be raised against them.
- Outstanding Direct Tax Arrears: Individuals with direct tax arrears exceeding ₹10 lakh that have not been stayed by any authority.
Legal Framework
The requirement for a tax clearance certificate is grounded in Section 230 of the Income-tax Act, 1961. According to this section, not every person is required to obtain a tax clearance certificate; only those in specific circumstances are mandated to do so.
Application and Approval Process
Before a person is asked to obtain a tax clearance certificate, the reasons for this requirement must be documented. Approval must also be obtained from the Principal Chief Commissioner of Income-tax or the Chief Commissioner of Income-tax.
Issuance of the Certificate
The certificate is issued by the income-tax authority, stating that the person has no outstanding liabilities under the Income-tax Act, the Wealth-tax Act, 1957, the Gift-tax Act, 1958, or the Expenditure-tax Act, 1987.
Inclusion of the Black Money Act
The Finance Bill, 2024, proposes to add the reference of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, to the list of Acts under which liabilities must be cleared to obtain a tax clearance certificate.
Historical Context
A 2004 notification by the finance ministry specified that the tax clearance certificate may be required to be obtained by persons domiciled in India only in certain circumstances, including serious financial irregularities and substantial tax arrears.
Key Points
- Not Mandatory for All: The proposed amendment does not require every person to obtain a tax clearance certificate. Only those meeting specific criteria are required to do so.
- Circumstances for Requirement: The certificate is required in cases of serious financial irregularities or substantial tax arrears exceeding ₹10 lakh.
- Approval and Documentation: The reasons for requiring the certificate must be documented, and approval from the Principal Chief Commissioner or Chief Commissioner of Income-tax is necessary.
- Effective Date: The new provision will come into effect from October 1, 2024.
Revised Mandate
The revised mandate states that “no person who is domiciled in India shall leave India unless he obtains a certificate from the income-tax authorities stating that he has no liabilities under the Income-tax Act, or the Wealth-tax Act, 1957, or the Gift-tax Act, 1958, or the Expenditure-tax Act, 1987.”
Conclusion
The government’s clarification ensures that only those who meet specific criteria are required to obtain the tax clearance certificate, thereby facilitating smoother travel for the majority of Indian citizens while ensuring compliance with tax laws.