In response to recent social media concerns, the Union government has clarified that tax clearance certificates will be mandatory only for specific individuals, not for all overseas travellers. This clarification follows a proposal in the Finance Bill, 2024, which had sparked confusion about the necessity of these certificates.
Scope of the Amendment
The Finance Bill, 2024, proposed an amendment that would have made tax clearance certificates mandatory for all Indian citizens travelling abroad. However, the government has now clarified that this requirement is not universal.
Who Needs the Tax Clearance Certificate?
The tax clearance certificate is mandatory only for individuals who meet specific criteria:
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
Section 230 of the Income-tax Act, 1961, specifies that not every person is required to obtain a tax clearance certificate. The provision states that only certain persons, in respect of whom circumstances exist that necessitate the requirement for the certificate, will be required to obtain it.
Application and Approval Process
- Documentation: The reasons for requiring the certificate must be documented.
- Approval: Approval must be obtained from the Principal Chief Commissioner of Income-tax or the Chief Commissioner of Income-tax.
- Issuance: 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.
Historical Context
A 2004 notification by the Income Tax Department 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 all residents 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.”
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.
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. This measure aims to prevent tax evasion and ensure that individuals have settled all their income tax obligations before leaving the country.