Tax Clearance Certificates Not Mandatory For All Indians Moving Abroad, Clarifies Government

The Union government clarified on Sunday that tax clearance certificates would be mandatory only for individuals accused of financial irregularities or those with significant tax arrears. This clarification follows the Budget 2024 proposal that initially suggested making tax clearance certificates mandatory for all overseas travelers, which led to widespread outrage on social media.

In the Finance Bill 2024, the Ministry of Finance has proposed including a reference to the Black Money Act, 2015, among other Acts. This Act mandates that individuals must settle their financial liabilities and obtain a tax clearance certificate.

The government emphasized that the proposed amendment does not apply to everyone. “The proposed amendment does not require all residents to obtain a tax clearance certificate,” the ministry stated, as reported by PTI.

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Section 230 of the Income-tax Act, 1961

Section 230 of the Income-tax Act, 1961, does not require every individual to obtain a tax clearance certificate. It specifies that only certain individuals, under specific circumstances, are required to obtain the certificate. This was confirmed by the PTI report.

A 2004 notification by the Income Tax Department clarified that the tax clearance certificate is only necessary for those domiciled in India under particular conditions.

Who Needs the Tax Clearance Certificate

– Involvement in Serious Financial Irregularities: Individuals suspected of significant financial misconduct, whose presence is crucial for investigations under the Income-tax Act or the Wealth-tax Act, and who are likely to face tax demands, must obtain a tax clearance certificate.

– Outstanding Direct Tax Arrears: Individuals with direct tax arrears exceeding ₹10 lakh, which have not been stayed by any authority, are required to obtain a tax clearance certificate.

A person can only be asked to obtain a tax clearance certificate after the reasons for the requirement have been documented. Approval from the Principal Chief Commissioner of Income Tax or Chief Commissioner of Income Tax is also necessary.

The Income Tax authorities issuing the certificate must confirm that the individual has no liabilities under the Income-tax Act, the Wealth-tax Act, 1957, the Gift-tax Act, 1958, or the Expenditure-tax Act, 1987, according to the notification.