The Central Board of Direct Taxes (CBDT) has recently addressed growing confusion regarding Section 230 of the Income Tax Act, 1961, particularly concerning the need for a tax clearance certificate before leaving the country. This clarification comes after reports suggested that every individual domiciled in India would need to obtain such a certificate, causing widespread concern.
On August 20, the CBDT made it clear that Section 230 does not require all residents to secure a tax clearance certificate before traveling abroad. Instead, this requirement applies only in specific cases, such as when an individual is involved in serious financial irregularities or has outstanding direct tax arrears exceeding ₹10 lakh that have not been stayed by any authority.
The confusion seems to have arisen from recent amendments proposed in the Finance (No. 2) Act, 2024, which include references to the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015. The amendment aims to bring liabilities under the Black Money Act within the purview of Section 230, similar to existing obligations under the Income Tax Act and other direct tax laws.
CBDT emphasized that this adjustment merely broadens the scope of Section 230 to cover liabilities under the Black Money Act and does not introduce a blanket requirement for all residents to obtain a tax clearance certificate. The board further stated that since the provision’s inclusion in the Finance Act, 2003, the requirement for a tax clearance certificate has only been triggered in rare and specific circumstances.
According to CA Dr. Suresh Surana, the certificate confirms that an individual has no outstanding liabilities under various tax laws, including the Income Tax Act, the Wealth-tax Act, 1957, the Gift-tax Act, 1958, and the Expenditure-tax Act, 1987. The recent amendment will now also require clearance of any liabilities under the Black Money Act, effective from October 1, 2024.
This clarification by the CBDT ensures that the general public is not misled into believing that a tax clearance certificate is universally required for international travel. Instead, it remains a targeted measure for individuals with specific financial circumstances.
