Jul 29, 2024 01:27 PM IST

The Central Board of Direct Taxes (CBDT) issued a clarification with respect to Section 230 of the Income Tax Act, 1961 after reports claimed that a tax clearance has become mandatory before leaving the country. The CBDT said Section 230 does not mandate every individual domiciled in India to secure a tax clearance certificate before leaving India. This requirement applies only under specific circumstances.

What is the tax clearance certificate?

The tax 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 the Black Money Act, 2015.

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What are the rules regarding the tax clearance certificate?

As per 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 as well as those with significant direct tax arrears exceeding Rs. 10 lakh.

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In these cases, the individual’s presence is deemed crucial for investigations under the Income Tax Act or the Wealth Tax Act. A tax demand is anticipated in this case as per the rules.

How is a tax clearance certificate issued?

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Issuance of a tax clearance certificate requires documented reasons and prior approval from the Principal Chief Commissioner of Income-tax or Chief Commissioner of Income-tax.