Recent clarification on income tax clearance certificate for all travelling abroad

Recently, the Finance Minister of India, Smt. Nirmala Sitharaman, presented the Finance Budget 2024-2025 on 23^rd July 2024. Vide the said budget proposal, section 230 of the Income Tax Act was amended.

The present article covers the basics of income tax clearance certificate and recent amendment thereof. Further, article also covers the clarification provided by the ministry post social media outrage on the requirement of obtaining income tax clearance certificate for all travelling abroad.

Basics of Income Tax Clearance Certificate and recent amendment thereof –

Section 230 of the Income Tax Act, 1961 deals with the provisions and requirement of obtaining income tax clearance certificate.

Basically, tax clearance certificate is a certificate issued by the Revenue Department stating that the person has duly complied with their respective tax obligations and have cleared all the tax dues.

Notably, tax clearance certificate includes compliance with Income Tax Act; Wealth Tax Act; Gift Tax Act and/ or Expenditure Tax Act or any such taxes which are/ may become payable by the person.

Interestingly, the Finance Bill, 2024 proposed to include the Black Money Act, 2015 in the list above. The amendment is going to be effective from 1^st October 2024.

With the introduction of the said proposal, there was a huge hue and cry in the social media circulating that all the resident travelling abroad need to obtain tax clearance certificate before leaving India. One of the same is highlighted hereunder –

Recent clarification clearing huge social media outrage on the requirement of Income Tax Clearance Certificate –

Post tremendous social media outrage, the minister had come up with a clarification that “the proposed amendment doesn’t require all the residents to obtain the income tax clearance certificate”. Further, the clearance certificate is mandatory in the following circumstances –

• Person involved in serious financial irregularities –

Income tax clearance certificate is mandatory for the person who is involved in serious financial misconduct and it’s likely that tax demand can be raised against such person. Accordingly, the presence of such person is necessary for investigations under the Income Tax or Wealth Tax Act.

• Person having outstanding direct tax arrears –

Income tax clearance certificate is also mandatory for the person who is having direct tax arrears of more than ₹10 lakh and such arrears is not stayed by any authority.