The Central Board of Direct Taxes (CBDT) has clarified the requirements for obtaining an Income Tax Clearance Certificate (ITCC) for Indians traveling abroad, aiming to dispel the misconception that all individuals must secure an ITCC before leaving the country.
What is an Income Tax Clearance Certificate?
An Income Tax Clearance Certificate is a document that verifies an individual has fulfilled all their tax obligations and does not owe any taxes. It also confirms that the individual will be accountable for any future tax liabilities.
Clarification on ITCC Requirements
The CBDT’s clarification came in response to misinterpretations of amendments to Section 230 of the Income-tax Act, 1961, made through the Finance (No. 2) Act, 2024. The clarification emphasized that the ITCC is not a universal requirement and is only necessary for specific individuals under particular conditions:
- Financial Irregularities: An ITCC is required for individuals involved in serious financial irregularities, particularly when their presence is necessary for investigations under the Income Tax Act or the Wealth-Tax Act, and it is likely that a tax demand will be raised against them.
- Outstanding Tax Arrears: Individuals with direct tax arrears exceeding Rs 10 lakh, which have not been stayed by any authority, are also required to obtain an ITCC. This ensures that individuals with significant unpaid taxes are accounted for before they can leave the country.
The CBDT also stated that an ITCC can only be requested after recording the reasons for doing so and obtaining approval from a Principal Chief Commissioner or Chief Commissioner of Income Tax.
The ITCC requirement has been part of the tax framework since 2003. The 2024 amendments do not fundamentally change existing provisions but clarify the situations in which an ITCC is necessary. The amendments also include references to the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, ensuring that liabilities under this Act are treated similarly to those under the Income Tax Act.
Also read: When will You get Income Tax Refund? Significant Things Revealed
How to Obtain an Income Tax Clearance Certificate
To obtain an ITCC, follow these steps:
- Submit a Formal Declaration: Begin by submitting a formal declaration to your employer in India or the individual/entity from whom you receive income. This initiates your request for an ITCC.
- For Non-Resident Indians (NRIs): NRIs must provide an undertaking using Form 30A when applying for the ITCC. This form, submitted by your employer or the source of your income in India, declares their responsibility for any tax liabilities that may arise after you leave the country.
- Review and Issuance: After reviewing your application, the tax officer will issue the ITCC on Form 30B. This certificate will detail its validity and confirm that you have met all your tax obligations up to that point.