Flying Abroad? Don’t leave without Income Tax Clearance Certificate

Summary: Starting October 1, 2024, Indian travelers must obtain a Tax Clearance Certificate (TCC) before leaving the country, a requirement that has caused confusion despite being part of the tax framework since 2003. The recent amendment under the Finance (No. 2) Act, 2024, aligns the TCC requirements with the Black Money Act, adding an extra layer of compliance for those with liabilities under this act. TCC is mandatory for individuals domiciled in India only if they have significant tax arrears or are under investigation for financial irregularities. For non-domiciled individuals, the certificate is required if they have earned income from Indian sources while being in India for business or employment. The TCC ensures that travelers have cleared all tax dues, and failure to obtain it can lead to penalties, fines, or travel restrictions. The certificate can be obtained by submitting the appropriate forms to the tax authorities, and travelers are advised to apply well in advance of their departure to avoid any delays. The introduction of this requirement emphasizes the government’s focus on enforcing tax compliance among international travelers.

Introduction: The Indian government has introduced a new tax clearance certificate requirement effective October 1, 2024. This change has sparked considerable confusion, leaving many wondering: Who needs this certificate? Why is it being introduced now?

To clarify, the tax clearance certificate for residents has been part of the tax framework since 2003, introduced through the Finance Act, 2003, effective from June 1, 2003. The Finance (No. 2) Act, 2024, has merely amended Section 230(1A) of the Act to include references to the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (the ‘Black Money Act’). This means that liabilities under the Black Money Act are now treated similarly to those under the Income-tax Act, 1961, and other related Acts.

So, if it has existed for 20 years, why is it suddenly causing such a stir?

Let’s break down the purpose and details of this requirement to clear up the confusion.

Section 230 of the Income-tax Act, 1961(the ‘Act’) relates to obtaining of a tax clearance certificate (TCC).

1. The first sub-section requires a person not domiciled in India i.e. non-residents (NRIs) to obtain a TCC.

2. The second sub-section pertains to a person domiciled in India i.e. residents needing a TCC.

Who is considered a person domiciled in India?

The term ‘domicile’ is not defined in the Income-tax Act, 1961 or other ancillary laws. Ordinarily, it means a permanent home or place where a person resides with the intention of remaining there for a prolonged/ indefinite period. i.e the domicile of a person is in that country in which he either has or is deemed by law to have his permanent home. The Indian Succession Act, 1925 provides various definitions relating to the term ‘domicile’.

Purpose and Need for TCC:

1. Purpose of the Tax Clearance Certificate

The TCC serves as proof that the traveller has no outstanding tax liabilities. It ensures that all dues have been cleared. The certificate thus clears the ex-pat from any legal responsibility in the future. It allows them to leave the country without any worry.

2. Who Needs the Tax Clearance Certificate?

Not everyone is required to obtain a TCC from tax authorities, in other cases, a self-declaration would do. According to Section 230 of the Act, only certain individuals under specific circumstances need to obtain this certificate from the tax authorities. This requirement has been in place since 2003 and remains unchanged with the 2024 amendments.

a) FOR PERSONS DOMICILED IN INDIA:

 As per CBDT Instruction No. 1/2004, dated February 5, 2004, a TCC is mandatory for persons domiciled in India only in the following cases:

i) Where the person involved in serious financial irregularities and whose presence is required for investigations; or

ii) Where the person has direct *tax arrears in excess of Rs. 10 lakh which have not been stayed by any authority.

b) FOR PERSONS NOT DOMICILED IN INDIA:

 Persons not domiciled in India must obtain NOC if they meet the following criteria:

i. They are not domiciled in India;

ii. The have come to India, in connection with business, profession or employment;

iii. They have earned income from any Indian source.

If a non-resident visits India as a tourist or for reasons other than business, profession, or employment, they do not need an NOC or TCC.

3. How to Obtain the Tax Clearance Certificate?

a) FOR PERSONS DOMICILED IN INDIA:

Every domiciled person should submit the self-declaration in Form 30C at the time of departure which includes the PAN number, estimated period of stay outside India, and the purpose of the visit.

For those who are compulsorily required to obtain a TCC as per Section 230(1A), an application in Form 31 should be submitted. After verification, the concerned authority will issue a TCC in Form 33, confirming that all tax liabilities have been addressed. The certificate is typically processed within a few weeks, but travellers are advised to apply well in advance of their departure date to avoid delays.

Form No 30C: Form for furnishing the details under section 230(1A) of the Income-tax Act, 1961: https://incometaxindia.gov.in/Forms/Income-Tax%20Rules/103120000000007879.pdf

Form No 31: Application for a certificate under the first proviso to sub-section (1A) of section 230 of the Income-tax Act, 1961: https://incometaxindia.gov.in/Forms/Income-Tax%20Rules/103120000000007880.pdf

Form No 33: Clearance certificate under the first proviso to sub- section (1A) of section 230 of the Income-tax Act, 1961: https://incometaxindia.gov.in/Forms/Income-Tax%20Rules/103120000000007881.pdf

b) FOR PERSONS NOT DOMICILED IN INDIA:

If a person is not domiciled in India, Form 30A needs to be furnished by employer or a person through whom the income is received declaring their responsibility for any tax liabilities that might arise after he/she leaves the country.

After reviewing the application, the tax officer will issue the No Objection certificate i.e. TCC in Form 30B. This certificate will contain the detail of the validity and confirm that he/she have met all tax obligations up to that point.

Form No 30A: Form of undertaking to be furnished under sub-section (1) of section 230 of the Income-tax Act, 1961: https://incometaxindia.gov.in/forms/income-tax%20rules/103120000000007879.pdf

Form No 30B: No Objection Certificate for a person not domiciled in India under section 230(1) of the Income-tax Act, 1961: https://incometaxindia.gov.in/Forms/Income-Tax%20Rules/103120000000007878.pdf

4. Penalties for Non-Compliance

Failure to obtain a TCC before leaving the country can result in penalties, fines, and travel restrictions. Airlines and immigration authorities will enforce this requirement, and non-compliant travellers may be barred from boarding their flights.

For those leaving the country via private means, it is their responsibility to clear all dues and obtain a TCC before departure. Failure to do so allows the Tax Authority of India to take necessary measures to recover any outstanding taxes.

5. Issues for Consideration and Important Points

> The TCC requirements applies to all domiciled individuals subject to conditions as mentioned above regardless of their travel purpose whether for business, tourism, education, or otherwise.

> The requirement applies to both first-time travellers and frequent flyers.

6. Conclusion

The introduction of the mandatory Tax Clearance Certificate for Indian travellers highlights the government’s focus on ensuring tax compliance. While this new requirement adds a step to the travel planning process, it aims to create a more transparent and accountable tax system. Travelers should familiarize themselves with the process and prepare in advance to ensure a smooth journey.