Income tax clearance mandatory to leave India? Centre issues a clarification. Here's what it says

The Central Board of Direct Taxes (CBDT) has issued a  clarification regarding Section 230 of the Income Tax Act, 1961 over reports that claimed a mandatory tax clearance was needed before leaving the country. 

Responding to the reports, which created a significant stir, the CBDT said Section 230 does not mandate every individual domiciled in India to secure a tax clearance certificate before departure. 

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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. 

In such cases, the individual's presence is deemed crucial for investigations under the Income-tax Act or the Wealth-tax Act, and a tax demand is anticipated.

Moreover, the issuance of a tax clearance certificate is not an arbitrary process. It requires documented reasons and prior approval from the Principal Chief Commissioner of Income-tax or Chief Commissioner of Income-tax. The certificate confirms that the individual has no outstanding liabilities under various tax laws, including the Income-tax Act, Wealth-tax Act, Gift-tax Act, Expenditure-tax Act, and now, the Black Money Act, 2015, as proposed in the recent Finance (No. 2) Bill, 2024. 

This proposal aims to ensure that liabilities under the Black Money Act are also cleared before issuing the tax clearance certificate.

The Finance (No. 2) Bill, 2024, specifically Clause 71, seeks to amend Section 230 to include references to the Black Money Act, 2015. This amendment, set to take effect on October 1, 2024, reinforces that only individuals falling under the specified categories must obtain a tax clearance certificate.