Income-Tax Clearance Certificate u/s. 230(1A) is required by residents domiciled in India, only in cases (a) where a person is involved in serious financial irregularities or (b) where a tax demand of more than Rs. 10 lakh pending but not stayed by any authority.
The Central Board of Direct Taxes (CBDT) recently issued a clarification regarding the requirement of obtaining an Income-tax Clearance Certificate (ITCC) under Section 230(1A) of the Income-tax Act, 1961. This section primarily deals with the necessity of acquiring a tax clearance certificate by individuals domiciled in India under specific conditions.
Historical Context
Section 230(1A) was introduced via the Finance Act, 2003, and came into effect from June 1, 2003. The recent Finance (No.2) Act, 2024, brought an amendment to Section 230(1A). The amendment simply added a reference to the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (referred to as the ‘Black Money Act’). This inclusion ensures that liabilities under the Black Money Act are treated similarly to those under the Income-tax Act, 1961, and other direct tax legislation for the purposes of Section 230(1A).
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Misconception about ITCC Requirement
There has been confusion regarding the amended provisions, with some reports incorrectly suggesting that all Indian citizens need to obtain an Income-tax Clearance Certificate before leaving the country. This interpretation is incorrect.
As clarified by the CBDT, the requirement to obtain an ITCC has been present in the statute since 2003, and the 2024 amendment does not change the basic premise of the law. The requirement for a tax clearance certificate is limited to specific cases, not applicable to all citizens.
When is an ITCC Required?
According to Section 230 of the Income-tax Act, only under certain circumstances must a person obtain an ITCC. CBDT Instruction No. 1/2004, dated 05.02.2004, clarifies that a tax clearance certificate is required only in rare scenarios:
- Serious Financial Irregularities: If a person is involved in significant financial irregularities and their presence is necessary for the investigation under the Income-tax Act or the Wealth-tax Act, and it is anticipated that a tax demand will be raised against them.
- Unpaid Direct Tax Arrears: If an individual has direct tax arrears exceeding Rs. 10 lakh, and these arrears have not been stayed by any legal authority.
Approval Process
The decision to require an ITCC is not taken lightly. Before an individual can be asked to obtain the certificate, tax authorities must record specific reasons and seek approval from either the Principal Chief Commissioner of Income-tax or the Chief Commissioner of Income-tax.
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Conclusion
The requirement to obtain an Income-tax Clearance Certificate under Section 230(1A) of the Income-tax Act remains unchanged since 2003. Only in specific instances—such as cases involving serious financial misconduct or significant unpaid tax liabilities—would individuals domiciled in India need to obtain this certificate before leaving the country. The amendment made in 2024 only extends the scope to cover liabilities under the Black Money Act but does not affect the core principle of the existing law.
This clarification from the CBDT aims to dispel any misinformation and reiterates that the requirement for an ITCC is a rare occurrence, applicable only in certain exceptional cases.
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