Black money: CBDT issues clarification on income-tax clearance certificate. Check details

The Central Board of Direct Taxes (CBDT) on Tuesday clarified that all Indian citizens are not required to obtain an income-tax clearance certificate (ITCC) before travelling to other countries. The statement was issued after an amendment was made to the Income Tax Act 1961 through the Finance Bill 2024, wherein the Black Money Act has been incorporated into the Income Tax Act. This amendment outlines specific circumstances under which individuals can obtain an Income Tax Clearance Certificate, effectively becoming law following the passage of the Finance Bill.

In the notification, the CBDT outlined the instances when a tax clearance certificate, as per Section 230(1A) of the Act, must be obtained by individuals residing in India. These instances are limited to two specific scenarios.

The first scenario pertains to individuals engaged in significant financial irregularities, where their presence is deemed essential for investigations pertaining to cases under the Income-tax Act or the Wealth-tax Act, and there is a likelihood of a tax liability being imposed on them.

In a post on X (formerly Twitter), the CBDT said: "It is being erroneously reported that all Indian citizens must obtain ITCC before leaving the country. This position is factually incorrect. Vide Finance (No.2) Act, 2024, Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 ( the ‘Black Money Act’)  has been added to the list of Acts u/s 230(1A) of the Income-tax Act, 1961, whereby any resident leaving the country is required to obtain a tax clearance certificate in certain circumstances. This insertion has been made only to cover the liabilities under the Black Money Act."

The CBDT clarified, since its introduction in 2003, the provision has only applied to individuals in specific circumstances.

What did CBDT say about Income-tax clearance certificate

1. Section 230 (1A) of the Income-tax Act, 1961(the ‘Act’) relates to obtaining of a tax clearance certificate, in certain circumstances,by persons domiciled in India. The said provision, as it stands, came on the statute through the Finance Act, 2003 w.e.f. 1.6.2003.

2. The Finance (No.2) Act, 2024, has made only an amendment in Section 230(1A) of the Act, vide which, reference of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (the ‘Black Money Act’) has been inserted in the said Section.

3. This insertion has been made to also cover the liabilities under the Black Money Act in the same manner as the liabilities under the Income-tax Act,1961 and other Acts dealing with direct taxes for the purpose of Section 230(1A) of the Income-tax Act,1961.

4. As per section 230 of the Act, every person is not required to obtain a tax clearance certificate.

5. 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.

6. 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:

> Where the person is involved in serious financial irregularities

> 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

> Where the person has direct tax arrears exceeding Rs. 10 lakh outstanding against him which have not been stayed by any authority

> A person can be asked to obtain a tax clearance certificate only after recording the reasons for the same and after taking approval from the Principal Chief Commissioner of Income-tax or Chief Commissioner of Income-tax