Tax Clearance Certificate for Foreign Travel: Confusion & Clarification
Recently, a piece of news circulated widely on social media claiming that every Indian citizen traveling abroad would be mandated to obtain a Tax Clearance Certificate (TCC) from October 1st, 2024. This rumor gained traction following an amendment introduced in the 2024 Budget, sparking widespread concern and discussion. In light of this, it is essential to clarify the legal requirements surrounding the TCC and understand when it is actually necessary to be obtained. Let’s take a closer look at the law related to TCC:
1. The provision related to TCC is there in Section 230 of the Income Tax Act – 1961 & was most commonly termed earlier as Income Tax Clearance Certificate (ITCC). The said provision came in the statute through the Finance Act, 2003 w.e.f. 1.6.2003. It was very much operative earlier where almost every Government contractor was required to submit the ITCC at the time of applying for tender/Contract or at the time of selling the immoveable properties. After the requirements of obtaining ITCC were done away, the section was almost in sleeping mode.
2. The law related to TCC has come to limelight in view of the recent amendment by the Finance (No.2) Act, 2024 in Section 230(1A) wherein a reference to the Black Money Act has been incorporated. This insertion has been made to also cover the liabilities under the Black Money Act in the same manner as the liabilities under the Income-tax Act, 1961.
3.As per section 230 of the Act, not every person is required to obtain a TCC. Only certain persons in respect of whom circumstances exist which make it necessary to obtain TCC are required to obtain the said certificate. As per the existing law, TCC is required to be obtained in following two cases:
a)Where the person is involved in serious financial irregularities and his presence is necessary in investigation of cases under the Income-tax Act or the Wealth-tax Act and it is likely that a tax demand will be raised against him, or
b) Where the person has direct tax arrears exceeding Rs. 10 lakh outstanding which have not been stayed by any authority.
Section 230 provides that no person as discussed above shall leave the territory of India by land, sea or by air without obtaining the TCC in such a case.
4. As a measure against misuse by officers, Section 230 of the Income Tax Act – 1961 categorically mentioned as under:
“Provided that no income-tax authority shall make it necessary for any person who is domiciled in India to obtain a certificate under this section unless he records the reasons thereof and obtains the prior approval of the Principal Chief Commissioner or Chief Commissioner of Income-tax”.
5. The news that all the Indian citizens travelling abroad are required to obtain the TCC is not fully correct. The same has been clarified by the Ministry of Finance in a press release dated 20.08.2024 that the tax department will not insist on TCC in all the cases.
6. Responsibility of ensuring the compliance with Section 230:
It is provided that if the owner or charterer of any ship or aircraft carrying persons from any place within the territory of India to any place outside India in violation of section 230 shall be personally liable to pay the whole or any part of the amount of tax, if any, payable by such person. [For the purposes of TCC, the expressions “owner” and “charterer” include any agent, representative, or employee empowered by the owner or charterer to allow persons to travel by ship or aircraft]. In short, the shipping or airlines companies & their agents would now be required to verify that the person satisfying above criteria doesn’t leave India without obtaining TCC.
The question now arises as to how the airline or shipping companies or their agent will come to know about the involvement of any person in Serious Financial irregularities or such a person has a tax demand of more than Rs. 10 lakhs?. There is no clear cut answer as of now for this. It might happen that the income tax department may provide a dashboard to verify demand status and financial irregularities based on PAN to the concerned entities. Similar facility is already provided by the Income Tax Department for the purpose of section TDS on cash withdrawals under section 194N, TDS & TCS on non-filers of income tax return under section 206AB and 206CCA, etc.
Conclusion:
TCC will be required only if a person domiciled in India is involved in serious financial irregularities or has a tax demand of more than Rs 10 lakh or whose presence is required by the department in serious Income Tax Investigation by the department. There is responsibility on the owner or charterer of any ship or aircraft carrying persons from any place in the territory of India to any place outside India to ensure that above law is not violated. The TCC acts as a safeguard against individuals involved in significant financial irregularities or with tax liabilities exceeding Rs. 10 lakh leaving the country thereby making authorities powerless. It serves as a critical measure to prevent tax evasion and to deter those attempting to flee after committing financial fraud.
[Views expressed are the personal view of the author. Readers are advised to seek professional advice before taking any decisions. Readers may forward their feedback & queries at nareshjakhotia@gmail.com. Other articles & response to queries are available at www.theTAXtalk.com]
