CBDT Issues Clarification on Income Tax Clearance Certificate

Overview of Income Tax Clearance Certificate in India

The Income Tax Department issues the Income Tax Clearance Certificate to confirm that a person has duly complied with their tax obligations and cleared all tax dues. The existing provisions of sub-section (1A) of section 230 of Act specify that, no person who is domiciled in India, shall leave India, unless he obtains an Income Tax Clearance certificate from the income-tax authorities. This certificate confirms either:

• No liabilities under Income-tax Act, 1961, or the Wealth-tax Act, 1957, or the Gift-tax Act, 1958, or
• The Expenditure-tax Act, 1987, or that satisfactory arrangements have been made for the payment of all or any of such taxes which are or may become payable by that person.

Key Updates under Section 230 Income Tax and ITCC India

The Indian government has frequently updated its tax laws to combat tax evasion and enhance transparency. In the Budget for financial year 2024-2025, the government introduced changes to Section 230 of the Income Tax Act, 1961. Consequently, this section now governs the issuance of Income Tax Clearance Certificates (ITCC) more comprehensively. Moreover, the amendment incorporates liabilities under the Black Money Act, 2015, into Section 230 requirements, effective from October 1, 2024. However, this led to social media misinformation suggesting that all Indian residents traveling abroad must obtain an ITCC.

CBDT Clarification 2024 on Tax Clearance for Residents

Following social media outrage, the Ministry of Finance clarified that misinformation arose from misinterpreting the amendment. Consequently, authorities require the certificate only from individuals with serious financial irregularities or unpaid direct tax arrears exceeding ₹10 lakh. Moreover, the clarification confirms that only specific individuals under defined conditions must obtain the clearance certificate.
Therefore, authorities do not require all residents traveling abroad to secure the Income Tax Clearance Certificate.

Implications of the Income Tax Clearance Certificate for Tax Compliance

Therefore, above amendments together with clarification helps in making the direct tax regime more inclusive and fairer by ensuring that tax payers cannot evade liabilities under different laws by leaving the country, thereby fostering a more transparent and an accountable tax system.