The Central Board of Direct Taxes (CBDT) has issued an important clarification regarding the requirements for obtaining an Income-tax Clearance Certificate (ITCC) under Section 230(1A) of the Income-tax Act, 1961. This clarification addresses recent misconceptions about the necessity of obtaining an ITCC before leaving India.
Background of Section 230(1A):
Section 230(1A) of the Income-tax Act, 1961, mandates the requirement for a tax clearance certificate under specific circumstances for individuals domiciled in India. This provision was introduced through the Finance Act, 2003, effective from June 1, 2003. The Finance (No. 2) Act, 2024, has recently amended Section 230(1A) by including references to the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (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 laws for the purposes of Section 230(1A).
Misinterpretation of the Amendment:
There has been misinformation suggesting that all Indian citizens are now required to obtain an ITCC before leaving the country. This interpretation is incorrect.
As per Section 230 of the Income-tax Act, not every individual is required to obtain a tax clearance certificate. The requirement to obtain an ITCC applies only to specific individuals under certain circumstances. This provision has been in place since 2003 and remains unchanged, even after the amendments introduced by the Finance (No. 2) Act, 2024.
Circumstances Requiring an ITCC
CBDT, in its Instruction No. 1/2004, dated February 5, 2004, specified the circumstances under which an ITCC may be required for individuals domiciled in India:
1. Involvement in Serious Financial Irregularities:
If a person is involved in significant financial irregularities and their presence is essential for investigations under the Income-tax Act or the Wealth-tax Act, especially when a tax demand is likely to be raised.
2. Outstanding Direct Tax Arrears:
If a person has outstanding direct tax arrears exceeding ₹10 lakh, which have not been stayed by any authority.
Furthermore, the requirement for an individual to obtain an ITCC can only be enforced after documenting the reasons and obtaining approval from the Principal Chief Commissioner of Income-tax or the Chief Commissioner of Income-tax.
The CBDT reiterates that an ITCC under Section 230(1A) of the Income-tax Act is required only in rare circumstances. These include cases involving serious financial irregularities or when an individual has pending tax demands exceeding ₹10 lakh that have not been stayed. The amendment made by the Finance (No. 2) Act, 2024, does not alter the fundamental conditions under which an ITCC is required.
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