Clarification Issued on Section 230(1A) of Income-tax Act: No Mandatory Tax Clearance Certificate for All Indian Citizens

New Delhi, 20th August 2024: The recent amendment to Section 230(1A) of the Income-tax Act, 1961, has led to widespread confusion and misinformation, particularly regarding the requirement of obtaining a tax clearance certificate (ITCC) for Indian citizens before leaving the country. Contrary to circulating reports, the Central Board of Direct Taxes (CBDT) has clarified that the amendment does not impose a blanket requirement for all Indian citizens to secure an ITCC.

Section 230(1A) of the Act, originally introduced through the Finance Act, 2003, stipulates the need for a tax clearance certificate under specific circumstances. The recent change, introduced by the Finance (No. 2) Act, 2024, simply adds a reference to the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015. This inclusion ensures that liabilities under the Black Money Act are treated similarly to those under the Income-tax Act, 1961, and other direct tax laws in the context of Section 230(1A).

Despite some misinterpretations, the requirement for an ITCC remains unchanged since 2003. As per the law, not every individual is required to obtain this certificate. It is only necessary for specific individuals under certain circumstances, such as:

1. Involvement in Serious Financial Irregularities: If an individual is involved in significant financial discrepancies and their presence is crucial for investigations under the Income-tax Act or the Wealth-tax Act, and if there is a likelihood of a tax demand being raised against them.

2. Outstanding Tax Arrears: If an individual has unpaid direct tax arrears exceeding Rs. 10 lakh, which have not been stayed by any authority.

The CBDT had earlier outlined these criteria in Instruction No. 1/2004, dated 5th February 2004. Additionally, a tax clearance certificate can only be requested after valid reasons have been recorded and approval has been obtained from the Principal Chief Commissioner of Income-tax or the Chief Commissioner of Income-tax.

To reiterate, the need for an ITCC applies only in rare and specific cases involving financial irregularities or substantial unpaid tax liabilities. The recent amendment does not impose new or additional obligations on the general public.