New Mandate for Tax Clearance Certificates for Indians Planning to Move Abroad

Finance Minister Nirmala Sitharaman’s Union Budget 2024 has introduced a crucial amendment targeting individuals planning to relocate abroad from India. The new regulation stipulates that people domiciled in India must settle all their tax dues and obtain ‘clearance certificates’ before leaving the country. However, on Sunday, the government clarified that not everyone is required to secure a tax clearance certificate under this provision.

Instead, the amendment is designed to apply selectively, requiring only specific individuals who meet particular criteria, such as those involved in financial irregularities or having significant tax arrears, to obtain this certificate. This approach aims to ensure that the requirement is focused and justified, affecting only those who fall within these defined categories.

The Finance Ministry, through the Finance Bill 2024, has proposed to include a reference to the Black Money Act, 2015, in the list of Acts under which an individual must clear their liabilities to obtain the tax clearance certificate.

“As per section 230 of the Income-tax Act, 1961, every person is not required to obtain a tax clearance certificate. Only in the case of certain persons, in respect of whom circumstances exist which make it necessary to obtain a tax clearance certificate, will be required to obtain such certificate,” the notification stated.

Who Needs a Tax Clearance Certificate?

The need for a tax clearance certificate will primarily affect individuals involved in serious financial misconduct or those with outstanding direct tax arrears exceeding Rs 10 lakh. Specifically:

1. Involvement in Serious Financial Irregularities: If a person is suspected of engaging in serious financial misconduct, and their presence is deemed crucial for ongoing investigations under the Income-tax Act or the Wealth-tax Act, they will be required to obtain a tax clearance certificate, particularly if it’s likely that a tax demand will be raised against them.

2. Outstanding Direct Tax Arrears: If a person has direct tax arrears exceeding Rs 10 lakh that have not been stayed by any authority, they must obtain a tax clearance certificate before leaving the country.

Before an individual is asked to obtain a tax clearance certificate, the reasons for this requirement must be thoroughly documented. Additionally, approval must be secured from the Principal Chief Commissioner of Income-tax or the Chief Commissioner of Income-tax. The certificate itself is issued by the income-tax authority and confirms that the person has no outstanding liabilities under the Income-tax Act, the Wealth-tax Act, 1957, the Gift-tax Act, 1958, or the Expenditure-tax Act, 1987.

Inclusion of the Black Money Act

Given that the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, is also administered by the Central Board of Direct Taxes (CBDT), the recently introduced Finance (No. 2) Bill, 2024, proposes to include the Black Money Act in the list of Acts under which liabilities must be cleared to obtain a tax clearance certificate.

Revised Mandate for Domiciled Individuals

The revised mandate specifies that “no person who is domiciled in India shall leave India unless he obtains a certificate from the income-tax authorities stating that he has no liabilities under the Income-tax Act, or the Wealth-tax Act, 1957, or the Gift-tax Act, 1958, or the Expenditure-tax Act, 1987.”

The government has emphasized that any individual who owes taxes or has yet to clear any tax dues will not be permitted to leave the country until their taxes are fully settled. This new provision is set to come into effect on October 1, 2024. However, it should be noted that the existing provisions under the Income-tax Act for taxpayers planning to leave India will remain unchanged.

The introduction of this new mandate reflects the government’s ongoing efforts to tighten controls on tax compliance, especially for those involved in financial misconduct or who have significant tax liabilities. While the amendment primarily targets individuals with specific circumstances, it underscores the importance of ensuring tax obligations are met before any plans to relocate abroad are finalized.

This change marks a significant shift in how the Indian government manages tax compliance for its residents, especially in the context of increasing global mobility and the need to address financial irregularities. As the October deadline approaches, those who might be affected by this amendment are advised to carefully review their tax status and ensure all dues are cleared to avoid any disruptions to their travel plans.