No need for a Tax Clearance Certificate for most Travelling Abroad: CBDT clarifies

The Central Board of Direct Taxes (CBDT) issued a clarification in respect of the Income-tax clearance certificate (ITCC). CBDT stated that all Indian nationals do not need to obtain a tax clearance certificate before travelling to foreign countries.

Section 230 (1A) of the Income-tax Act, 1961(the ‘Act’) relates to obtaining of a tax clearance certificate, in certain circumstances, by persons domiciled in India. The said provision, as it stands, came on the statute through the Finance Act, 2003 w.e.f. 1.6.2003.

The Finance (No.2) Act, 2024 makes only one amendment to Section 230(1A) of the Act, inserting a reference to the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (the ‘Black Money Act’) in the said Section. This insertion has been made to cover the liabilities under the Black Money Act in the same way that the liabilities under the Income-tax Act of 1961 and other Acts dealing with direct taxes are covered by Section 230(1A) of the Income-tax Act of 1961.

There appears to be misinformation about the aforementioned amendment resulting from an inaccurate interpretation of the amendment. It is incorrectly reported that all Indian citizens must obtain an income-tax clearance certificate (ITCC) before departing the country. This position is factually untrue.

According to Section 230 of the Act, every person does not need to obtain a tax clearance certificate. Only select individuals must acquire a tax clearance certificate if their circumstances necessitate it. This position has been in the statute since 2003 and remains intact even after the amendments made by the Finance (No. 2) Act of 2024.

In this context, the CBDT, vide its Instruction No. 1/2004, dated 05.02.2004, has specified that the tax clearance certificate under Section 230(1A) of the Act, may be required to be obtained by persons domiciled in India only in the following circumstances:

i. 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

ii. where the person has direct tax arrears exceeding Rs. 10 lakh outstanding against him which have not been stayed by any authority.

Furthermore, a person may be asked to get a tax clearance certificate only after noting the reasons for the request and receiving approval from the Principal Chief Commissioner of Income-tax or Chief Commissioner of Income-tax.

In light of this, it is reiterated that residents domiciled in India require the ITCC under Section 230(1A) of the Act only in exceptional circumstances, such as (a) where a person is involved in serious financial irregularities or (b) where a tax demand of more than Rs.10 lakh is pending and has not been stayed by any authority.