Is a Tax Clearance Certificate mandatory for persons leaving India?

The new union budget presents a pivotal moment for the nation’s economic and social strategy. This year’s budget is not merely a financial roadmap but a comprehensive vision for India's future, reflecting the government's priorities and aspirations. Landmark changes such as removal of indexation benefit from capital gains has created an uproar that would certainly take quite some time to die down. The perceived requirement of a Tax Clearance Certificate for any person to leave India is another news that has been doing the rounds everywhere after Budget 2024 (No. 2) came out and we are going to explore the truth behind it in this article.

Before we begin the analysis, it should be noted that this requirement is not a new one. Section 230 (1A) of the Income Tax Act, 1961 has long since been in place and states that every person who is domiciled in India at the time of leaving India must furnish certain documents and details in prescribed form to the income-tax authority or such other authority as prescribed to apply for Tax Clearance Certificate from the Income Tax Department.

The real purpose of this certificate, as specified in Section 230 (1A), is to declare that this person leaving India does not have liabilities under:

- The Income Tax Act, 1961

-The Wealth-tax Act, 1957 (27 of 1957)

- The Gift-tax Act, 1958 (18 of 1958)

- The Expenditure-tax Act, 1987 (35 of 1987)

Or has made necessary arrangements to pay off all or any such taxes that are payable by the person. But does this truly apply to all? Let’s find out.

In 2004, The Income Tax Department issued an instruction1, which sheds more light on who Section 230 (1A) is truly applicable for. The instruction clarifies that a Tax Clearance Certificate may be obtained by persons domiciled in India only if the person in question is

(i) involved in serious financial irregularities and investigations under specified acts are undergoing, that requires his presence, or

(ii) if he has direct tax arrears exceeding Rs. 10 lakh that has 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 taking approval from the Principal Chief Commissioner of Income-tax or Chief Commissioner of Income-tax.

Hence it is quite clear that this is not for the regular common man.

Budget 2024 merely made an amendment to Section 230 (1A) by proposing to add the Black Money Act, 2015 to the list of acts (already mentioned above) under which a person leaving India must not have outstanding liabilities.

It was this amendment, to a section that has long been in place, that was misconstrued by the public as a new change which is applicable to every single person leaving India henceforth.

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1 Instruction no: 1/2004, Dated 5-2-2004