The Union government on Sunday clarified that tax clearance certificates would be mandatory only for those accused of financial irregularities or who have significant tax arrears. The clarification comes after a Budget 2024 proposal that would have made them mandatory for all travellers abroad sparked outrage on social media.

In the Finance Bill 2024, the Ministry of Finance has proposed to add the reference to the Black Money Act, 2015 to the list of laws. This law requires everyone to clear their financial liabilities and get the tax clearance certificate.

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The government clarified that the proposed amendment will not apply to everyone. “The proposed amendment does not require all residents to obtain a tax exemption certificate,” the ministry said, PTI reported.

What does Article 230; Income Tax Act, 1961 say?

Section 230 of the Income-tax Act, 1961, does not make it mandatory for everyone to obtain a tax clearance certificate. “Only in the case of certain persons, in respect of whom circumstances exist, which make it necessary to obtain a tax clearance certificate, will be required to obtain such certificate,” PTI reported.

A 2004 notification by the Income Tax Department stated that the tax certificate is required only for persons resident in India, “only in certain circumstances,” the ministry said.

Who needs the Tax Clearance Certificate?

Involvement in serious financial irregularities: If a person is suspected of serious financial misconduct and his or her presence is crucial to investigations under the Income Tax Act or the Wealth Tax Act, and if it is likely that a tax assessment will be levied against him or her, he or she must obtain a tax certificate.

Outstanding Direct Tax Liabilities: If a person has direct tax liabilities exceeding ₹10 lakh who have not been stopped by any authority will have to obtain a tax certificate.

The Income Tax Department said that a person can be asked for a tax clearance certificate only after recording the reasons for the same. An approval from the Principal Chief Commissioner of income tax or Chief Commissioner of income tax is also required.

The tax authority issuing the certificate must declare that the person concerned has no obligations under the Income Tax Act, the Wealth Tax Act 1957, the Gift Tax Act 1958 or the Expenditure Tax Act 1987, as stated in the notice.