The government recently introduced the requirement to obtain an income tax clearance certificate through an amendment in the Income Tax Act, 1961 in the Budget 2024 session. The requirement created certain misconceptions amongst the public at large leading to issue of clarification by the government. Let’s understand what is Income Tax Clearance Certificate and what is the amendment that led to the issue of clarification by the government.

What is an Income Tax Clearance Certificate?

An income tax clearance certificate is issued by the tax authorities stating that the taxpayer has discharged its entire tax liability and is not responsible for paying any tax. This certificate can be issued for various purposes. For instance, many individuals who are non-residents in India can be in India for employment, business or professional reasons. They generate income during their stay in India and eventually plan to leave once their business, employment or assignment is over. In such cases, it is essential for them to meet all their tax obligations in India before leaving.

Income Tax Clearance Certificate – Finance Act, 2024

Section 230(1A) of Income Tax Act, 1961 specifies certain situations in which persons domiciled in India are required to obtain an income tax clearance certificate. The amendments in Finance Act, 2024 raised concerns amongst the taxpayers who were planning to visit abroad, either temporarily or permanently. Here’s what the amendment in Finance Act, 2024 states:

In section 230 of the Income-tax Act, in sub-section (1A), in the proviso, in the long line, after the words and figures “the Expenditure-tax Act, 1987,”, the words, brackets and figures “or the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015,” shall be inserted with effect from the 1st day of October, 2024.

Through this amendment, the government incorporated Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (the ‘Black Money Act’) in the list of Acts u/s 230(1A) of the Income-tax Act, 1961. This ensured that the citizens leaving India discharged their tax liabilities before leaving. Concerns started erupting as to whether all the citizens were required to obtain an income tax clearance certificate before leaving. Following this, the Income Tax Department issued the clarification to clear the air.

What Did the Income Tax Department Stated?

“There appears to be a mis-information about the said amendment emanating from incorrect interpretation of the amendment. It is being erroneously reported that all Indian citizens must obtain income-tax clearance certificate (ITCC) before leaving the country. This position is factually incorrect.” – Income Tax Department quoted.

Section 230 of Income Tax Act does not require every person leaving India to obtain an income tax clearance certificate. Only those persons in relation to whom the circumstances specify are required to obtain the said certificate. Accordingly, the following persons domiciled in India are required to obtain the income tax clearance certificate:

  • Where the person is involved in serious financial irregularities and his presence is necessary in the investigation of cases under the Income-tax Act or the Wealth-tax Act and it is likely that a tax demand will be raised against him, or
  • Where the person has direct tax arrears exceeding Rs. 10 lakhs outstanding against him which have not been stayed by any authority.

It shall be noted that a person can be asked to obtain the income tax clearance certificate only after obtaining approval from the Principal Chief Commissioner of Income Tax or Chief Commissioner of Income Tax and after recording the reasons for the same. For more such useful information, feel free to contact the ASC Group.

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