Budget impact: The Finance Bill, 2024 has mandated that any person domiciled in India would require an income tax clearance certificate to leave the country. Clause 71 of the Bill seeks to amend section 230 of the Income-tax Act relating to tax clearance certificates. This amendment will take effect from 1st October, 2024.
The clause reads as, “sub-section (1A) of the said section, provides 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”.
Alternatively, such a person has the option to make “satisfactory arrangements for the payment of all or any of such taxes which are or may become payable”.
This clearance certificate will be required to be obtained where circumstances exist which, in the opinion of an income-tax authority render it necessary for such person to obtain the same.
The Bill further states that it is proposed to “amend the proviso to the said sub-section by inserting the reference of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 therein, so as to impose the liabilities under the said Act for the purposes of obtaining the certificate relating to no liabilities.”
According to Section 230 of the Income-tax (I-T) Act, anyone living in India must get a certificate from the tax authorities before leaving the country. This certificate confirms that the person has no unpaid taxes or has arranged to pay any outstanding amounts.
The 2024 Budget includes a proposal to eliminate the Rs 10 lakh penalty specified in sections 42 and 43 of the Black Money Act for failure to report foreign assets (excluding real estate) when the total value of such assets is below Rs 20 lakh.
In the past, under the Black Money Act, a standard penalty of Rs 10 lakh was enforced for failure to disclose any foreign asset, irrespective of its worth. This policy placed a considerable financial strain on taxpayers who may have overlooked reporting small-scale assets held overseas unintentionally.
Central Board of Direct Taxes (CBDT) chairman Ravi Agarwal stated that the amendments in the Black Money Act aim to offer taxpayers relief from penalties when they do not disclose overseas assets valued at Rs 20 lakh or less. Currently, taxpayers can incur a penalty of Rs 10 lakh for not disclosing a foreign asset as low as Rs 5 lakh.
The recent change in rules introduced in the Budget does not affect Indian individuals who are renouncing their citizenship in favour of obtaining foreign citizenship. According to Indian regulations, individuals acquiring a foreign nationality must relinquish their Indian passport. Subsequently, the individual must initiate the process of acquiring a renunciation certificate from the Indian authorities.
Upon submission of the renunciation application, the Ministry of Home Affairs and local law enforcement agencies conduct a thorough background investigation on the applicant. Any unresolved legal matters or outstanding tax obligations are brought to light during this scrutiny, influencing the determination of the individual's renunciation eligibility.
The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, aimed to crack down on black money held overseas. Sections 42 and 43 specifically addressed the non-disclosure of foreign income and assets in tax returns. Section 42 of the Act is concerned with resident taxpayers, with the exception of those not ordinarily resident, who are found to have neglected their obligation to report foreign assets or income in their income tax filings. Moreover, Section 43 of the Act imposes penalties on residents who have failed to provide accurate information regarding any foreign assets or income in their tax returns.
FM Nirmala Sitharaman on Thursday said that the NDA government made changes in the tax slabs in the recently-tabled Budget to benefit the middle-class and employed citizens of the country.
Speaking to Aaj Tak TV, FM Sitharaman said that the standard deduction was increased from Rs 50,000 per annum to Rs 75,000 to extend benefits to the salaried class.
"The rebates in tax rates in the recent Budget were made to extend benefits to the middle class. When tax slabs are reduced, it even benefits those who have a high income... A high income earner has to pay no tax for Rs 7 lakh of his total income. He/she pays tax on the remaining amount of the total income. This is how the normal taxation system works. The standard deduction was increased from Rs 50,000 to Rs 75,000 so that salaried individuals could get the benefit," Sitharaman said.
Sitharaman pointed out that the government has announced a subsidised education loan of up to Rs 10 lakh and a rebate in affordable housing to aid the middle class.
"We have introduced a subsidised education loan of up to Rs 10 lakh for the children of the middle-class. Apart from this, we have also announced subsidised rates of interest in affordable housing loans. We have also increased the amount for the Liberalised Remittance Scheme (LRS) for people who want to go abroad," she added.
What CBDT says
Responding to the reports, which created a significant stir, the The Central Board of Direct Taxes (CBDT) said Section 230 does not mandate every individual domiciled in India to secure a tax clearance certificate before departure.
The requirement applies only under specific circumstances. According to the CBDT’s Instruction No. 1/2004, dated February 5, 2004, a tax clearance certificate is necessary only for individuals involved in serious financial irregularities or those with significant direct tax arrears exceeding Rs. 10 lakh, provided these arrears have not been stayed by any authority.