Everything to Know About Income Tax Clearance Certificate

30 December 2022
5 min read

In the past, acquiring an Income-Tax Clearance Certificate was necessary for many transactions. For instance, submitting a bid for government projects, registering real estate, and renewing import/export, postage, and shipping licenses.

All of these have been abandoned in the wake of liberalization. The only number taxpayers must now include in their tender or other pertinent documents are their Permanent Account Number (PAN).

However, the Income Tax Act 1961 only requires obtaining an Income-Tax Clearance Certificate (or a similar certificate) for a minimal number of transactions.

In this blog, we will learn about the most crucial aspects of an Income Tax Clearance Certificate (ITCC) to dispel all your questions about the subject.

Meaning of an Income Tax Clearance Certificate

A Tax Clearance Certificate is a statement made by the tax authorities that the taxpayer has paid all his outstanding tax debts or is not responsible for paying any taxes.

A Tax Clearance Certificate is, in essence, a document issued by a state government department, typically the Department of Revenue. It attests that a company or person has complied with their tax obligations as of a specific date.

Depending on the rules and regulations of each state, various taxes, such as sales tax, use tax, franchise or corporate tax, unemployment tax, and others, may be covered in a Clearance Certificate for a business.

If the income tax officer is satisfied with the information provided, they will issue the ITCC in Form 30B upon receiving such an undertaking and the pertinent documents. The document will include information about the ITCC's validity as well.

Who Requires an Income Tax Clearance Certificate, and When Is It Required?

According to the Indian Income Tax Laws, anyone who is not an Indian citizen is present in the country on business, employment, or other official business and derives any income from India must acquire an Income Tax Clearance Certificate before departing the country or returning home.

In essence, this means that foreign nationals in India on business and who also receive income from India should apply for an Income Tax Clearance Certificate in India before leaving for their home country.

If a person meets all 3 of the following criteria and is departing the country, they must obtain an Income Tax Clearance Certificate-

a) They are not a resident of India

b) Has traveled to India for work, business, or other purposes

c) Receives income from anywhere in India

Additionally, even though the majority of Indian citizens and residents do not require to have an Income Tax Clearance Certificate, a person may be ordered to obtain an Income Tax Clearance Certificate if they are suspected of engaging in serious financial irregularities, their presence is required for legal investigation, and a tax demand may become real.

Who Does Not Require an Income Tax Clearance Certificate?

While a resident Indian who travels abroad for any reason other than to leave India permanently is required to provide his PAN, he is not required to obtain an Income Tax Clearance Certificate.

Form 30C must be used to submit this information. Further, an Income Tax Clearance Certificate is not necessary for an Indian non-resident who entered the country for any reason other than business, profession, or employment to obtain before leaving the nation.

How To Obtain an Income Tax Clearance Certificate?

Individuals can file a proclamation with their employer in India or with the person from whom they receive their income if they want to acquire an Income Tax Clearance Certificate. 

Additionally, when requesting the ITCC from the jurisdictional tax officer, a non-resident of India must submit an undertaking in the required format, Form 30A. This commitment must come from the concerned person's employer or the person through whom they receive their income, and it must state that they will be responsible for paying any taxes that may become due by the ex-pat after leaving the country.

If the income tax officer is satisfied with the information provided, they will issue the ITCC in Form 30B upon receiving such an undertaking and the pertinent documents. The document will make mention of the ITCC's validity.

What Categories of Individuals Apply for Tax Clearance Certificates?

  • People Who are Not Indian Citizens

An individual with income derived from any source in India who is not a resident of India but has traveled there for business, employment, or other purposes must obtain a tax clearance certificate before leaving the country.

An individual not a resident of India can obtain a certificate from their employer or the source of their income. However, in most cases, the employer or the person who receives income must inform the tax authorities that they will cover the tax owed by the employee or the person from whom the income was received if the employee is not a resident of India.

It should also specify that the responsible authority must immediately issue a no-objection certificate in Form No. 30B after receiving the undertaking.

  • People Who are Indian Citizens

When traveling outside of India, residents only need to provide their permanent account number, the reason for their trip, and the approximate length of time they will be gone.

Most Indian nationals and residents are exempt from needing a tax clearance certificate. However, such an order may be made if the income tax authorities determine that a person must obtain a tax clearance certificate to travel abroad due to several factors. Only with the Chief Commissioner of Income-approval tax can this order for passing an order be obtained.

What Happens If the Income Tax Clearance Certificate is Not Submitted?

The responsibility to verify the passenger's Income Tax Clearance Certificate falls on the carriage owner (aircraft or ship). They are responsible for paying the passenger's taxes if they do not.

Additionally, the owner of a chartered ship or plane is responsible for paying all taxes owed and obtaining an Income Tax Clearance Certificate. If he does not, the government will treat it as a tax arrear on his part and seek to recoup it.

Conclusion

In summary, a Tax Clearance Certificate is a document that the tax authorities issue certifying that the taxpayer has paid all of his tax debts or is not responsible for paying taxes.

This article describes the requirement for a Tax Clearance Certificate and its various uses.

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Disclaimer: The information presented here is general and is only intended for educational purposes.

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