Income-Tax Clearance Certificate Needed…: Centre’s Clarification

The Ministry of Finance issued a clarification on Tuesday to address the recent misinformation surrounding the need for an Income-Tax Clearance Certificate (ITCC) when leaving the country. According to the ministry, reports suggesting that all Indian citizens must obtain an ITCC before international travel are “factually incorrect.”

As pre the finance ministry statement, the confusion stems from an amendment to Section 230(1A) of the Income-Tax Act, 1961, introduced in the Finance (No. 2) Act, 2024. This amendment, the ministry said that, merely incorporates references to the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (the ‘Black Money Act’). The amendment also extends the same provisions for tax liabilities under the Black Money Act as those under the Income-Tax Act, 1961, for the purpose of Section 230(1A).

However, the ministry emphasised that the fundamental rules regarding ITCC requirements remain unchanged.

The Ministry of Finance commented that this amendment has been misinterpreted, leading to widespread but incorrect reports that all Indian citizens are now obligated to obtain an ITCC before leaving the country. The ministry confirmed that this requirement has been in place since 2003 and applies only to a select group of individuals, not the general public. “It is being erroneously reported that all Indian citizens must obtain an income-tax clearance certificate before leaving the country. This position is factually incorrect,” the ministry said in its statement.

Income-Tax Clearance Certificate Needed For…

Under Section 230 of the Income-Tax Act, only certain individuals are required to obtain the ITCC. These include individuals involved in serious financial irregularities or those with tax arrears exceeding Rs. 10 lakh that have not been stayed by any authority. According to the ministry, “This position has been in the statute since 2003 and remains unchanged even with the amendments vide Finance (No. 2) Act, 2024.”

The Central Board of Direct Taxes (CBDT), in its 2004 instructions, clarified that a person can only be asked to obtain a tax clearance certificate if their presence is necessary in an investigation under the Income-Tax Act or the Wealth-Tax Act. Furthermore, this requirement can only be imposed after approval from the Principal Chief Commissioner or Chief Commissioner of Income-Tax, and reasons for the same must be documented. The ministry reiterated that ITCCs are only required in rare cases, stating that the certificate is needed “where a person is involved in serious financial irregularities” or “where a tax demand of more than Rs. 10 lakh is pending which is not stayed by any authority.”