Section 203(1A) deals with obtaining ITCC by the Indian Citizens in specified circumstances. This provision was inserted to safeguard the interest of the government and make sure that a person does not leave the country if he has a substantial tax liability under the Income Tax Act, Wealth Tax Act, Gift Tax, etc.
Section 203(1A) was amended by the Finance (No. 2) Act, 2024 to cover the Black Money Act in the list. However, such an amendment was misinterpreted as all Indian Citizens are required to obtain ITCC before leaving the country.
In this context, the CBDT has issued the clarification vide a press release dated 20th August 2024.
1. Background
- Section 230(1A) of the Income Tax Act, 1961 provides that every person, who is domiciled in India, shall furnish the following documents at the time of his departure from India:
- PAN
- Purpose of his visit outside India
- Estimate period of stay outside India
- As per first proviso to Section 203(1A) of The Act, no person:
- who is domiciled in India at the time of his departure; and
- in respect of whom circumstances exist which, in the opinion of an income-tax authority render it necessary for such person to obtain a certificate under this section,
shall leave the territory of India by land, sea, or air unless he obtains a certificate from the income-tax authority (i.e., Income Tax clearance certificate) stating that he has no liabilities under:
- Income Tax Act
- the Wealth-tax Act, 1957
- the Gift-tax Act, 1958; or
- the Expenditure-tax Act, 1987 (35 of 1987),
- The provision of obtaining a tax clearance certificate was introduced in the Act vide Finance Act, 2003 with effect from 01.06.2003.
- The Finance (No.2) Act, 2024 has been amended in Section 230(1A) to include the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 (the ‘Black Money Act’).
- However, this amendment was interpreted as every Indian citizen is required to obtain a tax clearance certificate before leaving the country.
- In this context, CBDT has issued the press release dated 20th August 2024 to the Income Tax clearance certificate.
2. Clarification issued by CBDT
- CBDT has clarified that as per Section 230 of the Act, every person is not required to obtain a tax clearance certificate.
- Only such persons, in respect of whom circumstances exist which make it necessary to obtain a tax clearance certificate, are required to obtain the tax clearance certificate.
- This position has been prevailing in the statute since 2003 and remains unchanged even with the amendments vide Finance (No. 2) Act, 2024.
- In this context, the CBDT has issued Instruction No. 1/2004, dated 05.02.2004 which specified that the tax clearance certificate under Section 230(1A) of the Act is required to be obtained by the persons domiciled in India only in the following circumstances:
- where the person is involved in serious financial irregularities and his presence is necessary in the investigation of cases under the Income-tax Act or the Wealth-tax Act and a tax demand will likely be raised against him, or
- where the person has direct tax arrears exceeding Rs. 10 lakh outstanding against him which have not been stayed by any authority.
Also, a person can be asked to obtain a tax clearance certificate only after recording the reasons for the same and after getting approval from the Principal Chief Commissioner or Chief Commissioner of Income.
- Amendment in Section 230(1A) was made only to cover liabilities under the Black Money Act.
- There appears to be misinformation about the said amendment emanating from an incorrect interpretation of the amendment. It is being erroneously reported that all Indian citizens must obtain an income-tax clearance certificate (ITCC) before leaving the country. This position is factually incorrect.
- Therefore, CBDT has clarified that the ITCC under Section 230(1A) of the Act, is needed by residents domiciled in India only in rare cases, such as (a) where a person is involved in serious financial irregularities or (b) where a tax demand of more than Rs. 10 lakh is pending which is not stayed by any authority.
