New Delhi: Not all taxpayers need to obtain a certificate confirming that no liabilities exist either under the Income Tax Act, 1961, or the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, according to a change in a provision proposed by the government last week. The rules will apply only to those people who are either involved in serious financial irregularities or have a significant amount of income tax dues pending.
Last week, the government proposed a modification to a provision under the Income Tax Act, 1961. Currently, under Section 230 of the Income Tax Act, certain taxpayers are required to obtain a tax clearance or ‘no tax due’ certificate before leaving the country. The government has now proposed that in addition to a tax clearance certificate, some taxpayers, before leaving the country, may need to furnish a certificate that they have no liabilities under the Black Money Act.
While the tax clearance certificate is applicable to both domiciled and non-domiciled individuals earning a living in India, the ‘no black money’ liabilities are applicable only to domiciled individuals.
“As per the proviso to the said sub-section, it is not mandatory to obtain a tax clearance certificate for every person who is domiciled in India, unless the income tax authorities record the reasons for obtaining the certificate, and obtain a prior approval of the chief commissioner of income tax,” Sreenivasulu Reddy, tax partner, EY India, told ThePrint.
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Expats who come to India to earn a living must furnish documents
A tax expert, who requested anonymity, told ThePrint that the immigration department will not have access to tax records as that is sensitive data. However, a red flag would pop up on their screens to indicate there might be an issue with the person leaving the country.
Aarti Raote, Partner, Deloitte India, explained to ThePrint that there are a lot of expats who travel to India to earn a living. These include foreigners who come to India on deputation, assignment or employment in India as a CEO or CFO, among others. They, she said, are required to furnish these documents before leaving the country permanently.
This, however, excludes tourists and is applicable only to people who have a source of income in India. She added that even Indians who are migrating permanently need to get this certificate.
On the clarification from the finance ministry that only people involved in financial irregularities or with tax dues over Rs 10 lakh will need to furnish those documents, Raote said, “According to this clarification, only some identified people would need a clearance certificate and not all. However, the section needs to be amended to include this as well.”
Kumarmanglam Vijay, partner, JSA Advocates and Solicitors, told ThePrint that Section 230 of the Income Tax Act, 1961, requires any person domiciled in India to furnish information on the reason for departure from India, and estimated period of stay outside India, in the prescribed form to the tax authorities.
“Having regard to the outstanding liabilities of such a person under the I-T Act, the tax authorities were empowered to ask such a person to obtain a no objection certificate or make suitable arrangements to meet the tax liability before allowing departure,” he said.
However, in 2004, the Central Board of Direct Taxes clarified that no-objection certificates would be required only where the person was involved in serious financial irregularities and their physical presence is required in the investigation of cases, and it is likely that a tax demand will be raised or tax arrears in excess of Rs 10 lakh are outstanding.
Provision to equally apply to people with outstanding liabilities
With the proposed change, Vijay noted that with effect from 1 October, 2024, this provision shall equally apply to any person having outstanding liability under the Black Money Act.
“Thus, going forward, any person who is domiciled in India may also have to make arrangements for discharge of tax liabilities under the Black Money Act or seek a no-objection certificate or make arrangements to discharge the liability. Where such a person departs from India without compliance with the above provision, and tax authorities are unable to recover the tax dues, the law also provides for the recovery of tax dues from the owner or charterer of the ship or aircraft which allowed the person to depart from India,” Vijay said.
Reddy highlighted that according to the Finance Bill, 2024, not all taxpayers, but those falling under Section 230 (1A) of the Income Tax Act, are required to apply for these certificates.
“Section 230 (1A) of the Income Tax Act, 1961, read with CBDT instruction No. 1/2004 dated February 5, 2004, requires the following taxpayers (domiciled in India) to obtain a tax clearance certificate before leaving India: where the person is involved in serious financial irregularities and his presence is necessary for cases pending under the Income Tax Act or Wealth Tax Act, and it is likely that a tax demand will be raised; or where a person has outstanding direct tax arrears exceeding Rs 10 lakh against him,” Reddy added.
Raote explained that previously, before return filing was digital, anybody could walk out of the country and nothing could be verified unless actual paperwork was seen. Hence, there was a requirement for anybody leaving India who had a source of income in the country to obtain a clearance certificate from the tax department stating that all their dues were paid or they had made necessary arrangements to pay those dues. So, it was an intimation ahead of leaving India permanently.
“This requirement also continues till date. In the Union Budget 2024, the proposed change is that the taxpayer, in addition to declaring that there are no income tax dues, has to declare that there are no black money dues. The Black Money Act was introduced in 2015 and since then, there has been a lot of action around this Act. This Act targets cases where taxpayers have assets overseas that have been created using income which escaped taxation in India. So, this is only for people domiciled in India who could be linked with black money,” Raote said.
She added that this does not apply to people leaving India for business travel or tourism, who will return in a short while and hence, are not required to get a tax clearance certificate. “But anyone who is migrating or permanently relocating or going for a much longer period of time would require it.”
Asked what the need for this law now is considering that filings are digital, she said now we do have digital linkages but these need to be a little more robust to track people emigrating from the country without payment of taxes.
(Edited by Radifah Kabir)
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