The Ministry of Finance has released a new clarification, in response to what it calls false information, stating that Indian nationals traveling overseas do not require an income-tax clearance certificate (ITCC) and specifying under what conditions one must obtain one.
Note that not all Indian nationals are required to obtain an ITCC prior to departing the country, despite what some recent stories claim, stated a Press Information Bureau press release on August 20, 2024.
Tax clearance certificate: What was announced in Budget 2024
Finance Minister Nirmala Sitharaman introduced a significant amendment in the Union Budget 2024 for those planning to relocate from India. According to the Budget 2024 announcement, the new law requires individuals domiciled in India to clear all tax dues and get ‘clearing certificates’ before departing the country.
FinMin clarification on who needs a tax clearance certificateHowever, the finance ministry has clarified that this modification does not require all individuals to obtain a tax clearance certificate.
According to the PIB release dated August 20, 2024, “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.”
Adding further, “As per section 230 of the Act, every person is not required to obtain a tax clearance certificate. Only certain persons, in respect of whom circumstances exist which make it necessary to obtain a tax clearance certificate, are required to obtain the said certificate. This position has been in the statute since 2003 and remains unchanged even with the amendments vide Finance (No. 2) Act, 2024.”
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In this context, the CBDT 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:
Financial irregularities: Where the person is involved in serious financial irregularities and his presence is necessary in 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
Direct tax arrears: Where the person has direct tax arrears exceeding Rs. 10 lakh outstanding against him which have not been stayed by any authority.
Further, a person can be asked to obtain a tax clearance certificate only after recording the reasons for the same and after getting approval from the Principal Chief Commissioner of Income-tax or Chief Commissioner of Income-tax.
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Thus, it is emphasized once more that residents of India are only required to use the ITCC under Section 230(1A) of the Act in extremely rare circumstances, such as (a) when an individual is involved in significant financial irregularities or (b) when a tax demand exceeding Rs. 10 lakh is pending and has not been stayed by any authority.
