In response to misleading reports suggesting that individuals must obtain a mandatory tax clearance before flying abroad, the Central Government has clarified the requirements under section 230 of the Income-tax Act, 1961.

According to the clarification issued by the Central Board of Direct Taxes (CBDT), not every person is required to obtain a tax clearance certificate.

Finance Minister Nirmala Sitharaman, proposed an amendment in the Budget 2024-25, tabled on July 23, to include a reference to the Black Money Act, 2015, for obtaining a tax clearance certificate.

This certificate, issued by the income-tax authority, would confirm that the individual has no liabilities under the Income-tax Act, the Wealth-tax Act, 1957, the Gift-tax Act, 1958, or the Expenditure-tax Act, 1987. Since the Black Money Act, 2015, is also administered by the CBDT, it is proposed to add it to the list of Acts under which liabilities must be cleared for the tax clearance certificate.

The CBDT said that the proposed amendment does not require all residents to obtain a tax clearance certificate. Instead, it only applies to specific cases where circumstances necessitate such clearance.

A tax clearance certificate is necessary for those involved in serious financial irregularities, where their presence is crucial for investigations under the Income-tax Act or the Wealth-tax Act, and where a tax demand is likely to be raised against them.

Additionally, individuals with direct tax arrears exceeding Rs 10 lakh, which have not been stayed by any authority, will need to obtain such a certificate. The CBDT further clarified that a person can be asked to obtain a tax clearance certificate only after reasons are recorded and approval is obtained from the Principal Chief Commissioner of Income-tax or the Chief Commissioner of Income-tax.