CBV- August 2024-Tax Clearance certificate.pdf

While tax amendments being subject to controversy are common, a recent change brought in vide Finance Act (No. 2), 2024 has stirred up quite an unintended storm. In his latest analysis, Ritesh Thakkar, Director - Direct Tax at CBV & Associates, breaks down the amendment to Section 230 of the Income-tax Act, now extended to liabilities under the Black Money Act.

The said section was always on the statute, there has been very less clarity on the persons to whom such provisions are applicable. Read more to understand how these changes could influence your tax responsibilities before leaving India.

1. Tax
Clearance
Certificate
under section 230 of the
Income-tax Act, 1961

2. 02CBV Tax Clearance Certificate
I. Legislative history
1. Until now, section 230(1A) of the Income-tax Act required a person
domiciled in India (refer Note 1 for meaning of the term 'domicile') to
obtain a tax clearance certificate from the Income- tax authorities before
leaving India, where, in the opinion of the tax authority such
circumstances exist which render it necessary for such person to obtain
such certificate.
2. This certificate confirms that such person has no outstanding liabilities
under the Income-tax Act, Wealth-tax Act, Gift-tax Act, or the
Expenditure-tax Act, or satisfactory arrangements have been made to pay
any such liabilities.
3. Further, approval of the Principal Chief Commissioner ('Principal CCIT') or
Chief Commissioner of Income-tax ('CCIT') is to be mandatorily taken by
the tax authority prior to requiring any person to obtain such certificate.
4. However, the above section did not cover liabilities arising under the Black
Money (Undisclosed Foreign Income and Assets) and Imposition of Tax
Act, 2015 ('Black Money Act').
II. Amendment
5. Vide Finance Act (No. 2), 2024 the above section has been amended to
cover liabilities arising under the Black Money Act under section 230(1A) in
addition to liabilities arising under other Acts to safeguard the interest of
the Revenue. The amendment is effective from October 1, 2024.
III. Clarifications issued by CBDT and
our comments
6. The CBDT, vide Instruction No. 1 of 2004 clarified that a Tax Clearance
Certificate may be required to be obtained by persons domiciled in India
under section 230(1A) only in the following circumstances:

3. 03CBV Tax Clearance Certificate
i. where the person is involved in serious financial irregularities and
his presence is necessary in investigation of cases under the
Income-tax Act/ Wealth-tax Act and it is likely that a tax demand
will be raised.
ii. where the person has direct tax arrears exceeding INR 10 lakhs
which have not been stayed by any authority.
7. The Chief Commissioner of Income-tax, after satisfying himself that the
departure of such persons from India will prejudicially affect the interest
of revenue, may authorize the Assessing Officer to require that such
persons obtain a Tax Clearance Certificate. The Assessing Officer,
thereafter, shall inform the immigration authorities accordingly.
8. Therefore, the provision does not require all persons to obtain a Tax
Clearance Certificate. Instead, it only applies to specific cases where
circumstances necessitate such clearance.
9. The amendment vide Finance Act (No. 2), 2024 should not affect the
circumstances prescribed vide CBDT Instruction No. 1 of 2004 and instead
only include outstanding liabilities under the Black Money Act under the
ambit of the Tax Clearance Certificate.
10. This has now been clarified by the CBDT vide Press Release dated August
20, 2024 wherein it has been reiterated that a Tax Clearance Certificate is
required only in circumstances mentioned in para. 6, above and not by
every Indian domiciled person.
11. This is a welcome clarification by the CBDT and helps assuaging the
apprehension and misconceptions emanating from various media reports
wherein it has been erroneously stated that every person domiciled in
India will have to obtain a Tax Clearance Certificate before travelling
abroad.
Note 1 - Meaning of the term 'domicile'
12. The term 'domicile' is not defined in the Income-tax Act, 1961 or other
ancillary laws. Ordinarily, it means a permanent home or place where a
person resides with the intention of remaining there for a prolonged/
indefinite period.

4. 04CBV Tax Clearance Certificate
13. The Indian Succession Act, 1925 provides various definitions relating to the
term 'domicile' and also provides certain illustrations for understanding
this better.
Section 7 - the domicile of origin of every person of legitimate birth is in the
country in which at the time of his birth his father was domiciled; or, if he is a
posthumous child, in the country in which his father was domiciled at the
time of the father's death.
Section 8 - “the domicile of origin of an illegitimate child is in the country in
which, at the time of his birth, his mother was domiciled”.
Section 9 - “The domicile of origin prevails until a new domicile has been
acquired.”
Section 10 – “A man acquires a new domicile by taking up his fixed
habitation in a country which is not that of his domicile of origin.
Explanation - A man is not to be deemed to have taken up his fixed
habitation in India merely by reason of his residing therein the civil, military,
naval or air force service of Government, or in the exercise of any profession
or calling.
Illustrations
(I) A, whose domicile of origin is in England, proceeds to 1 [India], where he
settles as a barrister or a merchant, intending to reside there during the
remainder of his life. His domicile is now in India.
(ii) A, whose domicile is in England, goes to Austria, and enters the
Austrian service, intending to remain in that service. A has acquired a
domicile in Austria.
(iii) A, whose domicile of origin is in France, comes to reside in India under
an engagement with the Central Government for a certain number of
years. It is his intention to return to France at the end of that period. He
does not acquire a domicile in India.
(iv) A, whose domicile is in England, goes to reside in India for the purpose
of winding up the affairs of a partnership which has been dissolved,
and with the intention of returning to England as soon as that purpose

5. 05CBV Tax Clearance Certificate
is accomplished. He does not by such residence acquire a domicile in
India, however, long the residence may last.
(v) A, having gone to reside in India in the circumstances mentioned in
the last preceding illustration, afterwards alters his intention, and
takes up his fixed habitation in India. A has acquired a domicile in India.
(vi) A, whose domicile is in the French Settlement of Chandernagore, is
compelled by political events to take refuge in Calcutta, and resides in
Calcutta for many years in the hope of such political changes as may
enable him to return with safety to Chandernagore. He does not by
such residence acquire a domicile in India.
(vii) A, having come to Calcutta in the circumstances stated in the last
preceding illustration, continues to reside thereafter such political
changes have occurred as would enable him to return with safety to
Chandernagore, and he intends that his residence in Calcutta shall be
permanent. A, has acquired a domicile in India.
Section 11 - Any person may acquire a domicile in India by making and depositing
in some office in India appointed in this behalf by the State Government, a
declaration in writing under his hand of his desire to acquire such domicile;
provided that he has been resident in India for one year immediately preceding
the time of his making such declaration.
Section 12 - A person who is appointed by the Government of one country to be its
ambassador, consul or other representative in another country does not acquire
a domicile in the latter country by reason only of residing there in pursuance of his
appointment; nor does any other person acquire such domicile by reason only of
residing with such first-mentioned person as part of his family, or as a servant.
Section 13 - A new domicile continues until the former domicile has been
resumed or another has been acquired.
Section 14 - The domicile of a minor follows the domicile of the parent from whom
he derived his domicile of origin.
Exception - The domicile of a minor does not change with that of his parent, if the
minor is married, or holds any office or employment in the service of Government,
or has set up, with the consent of the parent, in any distinct business.
Section 15 - By marriage a woman acquires the domicile of her husband, if she
had not the same domicile before.

6. 06CBV Tax Clearance Certificate
Section 16 - A wife's domicile during her marriage follows the domicile of her
husband.
Exception - The wife's domcile no longer follows that of her husband if they are
separated by the sentence of a competent Court, or if the husband is undergoing
a sentence of transportation.
Section 17 - Save as hereinbefore otherwise provided in this Part, a person cannot,
during minority, acquire a new domicile.
Section 18 - An insane person cannot acquire a new domicile in any other way
than by his domicile following the domicile of another person.
Section 19 - If a person dies leaving moveable property in India, in the absence of
proof of any domicile elsewhere, succession to the property is regulated by the law
of India.
Authored by -
Ritesh Thakkar
Director, Direct Tax