New Rule: Tax Clearance Certificate Now Required to Leave India

Starting October 1, 2024, any person residing in India will need an income tax clearance certificate to leave the country, as mandated by the Finance Bill, 2024. This amendment aims to tighten the rules under Section 230 of the Income-tax Act regarding tax clearance certificates.

Clause 71 of the Bill specifies that no individual domiciled in India shall be allowed to leave the country without obtaining a certificate from income-tax authorities. This certificate must confirm that the individual has no liabilities under the Income-tax Act, the Wealth-tax Act of 1957, the Gift-tax Act of 1958, or the Expenditure-tax Act of 1987. Alternatively, individuals can make satisfactory arrangements for the payment of these taxes if they are or may become payable.

The Bill further proposes to amend the proviso to include the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015. This means that liabilities under this Act must also be cleared to obtain the necessary tax clearance certificate.

According to Section 230, anyone residing in India must secure a certificate from tax authorities before traveling abroad. This certificate assures that all taxes have either been paid or suitable arrangements have been made for their payment.

The 2024 Budget also proposes to remove the Rs 10 lakh penalty under sections 42 and 43 of the Black Money Act for failing to report foreign assets, provided their total value is below Rs 20 lakh. Previously, a Rs 10 lakh penalty applied irrespective of the asset’s value, creating a significant burden on taxpayers who might have unintentionally failed to disclose minor overseas assets.

Ravi Agarwal, Chairman of the Central Board of Direct Taxes (CBDT), stated that the amendments aim to relieve taxpayers from penalties if they fail to disclose overseas assets worth Rs 20 lakh or less. Under current rules, taxpayers can face a Rs 10 lakh penalty for not reporting a foreign asset as low as Rs 5 lakh.

The recent changes do not impact Indian citizens renouncing their nationality to acquire foreign citizenship. Indian law requires individuals gaining foreign nationality to surrender their Indian passport and obtain a renunciation certificate. This process involves a thorough background check by the Ministry of Home Affairs and local law enforcement, which includes verifying any outstanding legal or tax issues.

The Black Money Act of 2015 targets undeclared foreign income and assets. Sections 42 and 43 specifically deal with the non-disclosure of such income and assets in tax returns, imposing penalties on residents who fail to report accurately.

Finance Minister Nirmala Sitharaman, addressing Aaj Tak TV, highlighted that the recent tax slab changes in the Budget were designed to benefit the middle class and employed citizens. The standard deduction was increased from Rs 50,000 to Rs 75,000 to extend benefits to salaried individuals.

“The rebates in tax rates in the recent Budget were made to extend benefits to the middle class,” Sitharaman stated. “When tax slabs are reduced, it even benefits those who have a high income. A high income earner has to pay no tax for Rs 7 lakh of his total income. He/she pays tax on the remaining amount of the total income. This is how the normal taxation system works.”

Additionally, the government has announced a subsidized education loan of up to Rs 10 lakh and rebates in affordable housing to further support the middle class.