With India's black money economy size ranging between 23% to 26% of the Gross Domestic Product, fighting the demon of black money is the alarming concern faced by the country. As layman would refer to, Black Money is basically tax evaded income. Tax evasion is a serious offence as it not only slows down economic development but also poses a threat to the national security. Additionally, honest taxpayers are burdened with high rates of taxes causing doubts and discontent about the entire system of legislature. Time and again various legislations are enacted proactively by the Central Government to curb the menace of Black Money. The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 referred to as – 'The Black Money Act' was enacted on 26th May, 2015. The objective of the Act was to deal with the problem of undisclosed foreign income and assets held outside India, lay down procedures for dealing with it and imposition of tax thereon.
In the above backdrop, Finance Minister Nirmala Sitharaman in India Union Budget 2024, proposed to include reference of The Black Money Act for the purpose of obtaining Tax Clearance Certificate. The proposed amendment will take effect from the 1st day of October, 2024.
What is a Tax Clearance Certificate?
A Tax Clearance Certificate is issued by income tax authority stating that there are no liabilities outstanding or satisfactory arrangements have been made for payment of taxes which may become payable under The Income Tax Act, 1961, The Wealth Tax Act, 1957, The Gift Tax Act, 1958 or The Expenditure Tax Act, 1987. It shall be issued in Form No.33 and will be valid for the period mentioned therein.
Who needs to obtain a Tax Clearance Certificate?
Every person domiciled in India leaving the territory of India by air, sea or land, shall obtain a Tax Clearance Certificate if the Income Tax Authority is of the opinion that in case of such person circumstances exist which render it necessary to obtain the certificate.
No Income Tax Authority can make it necessary to obtain the certificate unless reasons for the same are recorded and prior approval of Principal Chief Commissioner or Chief Commissioner of Income Tax is obtained.
Does it mean all residents and ordinarily residents of India leaving abroad shall obtain the certificate?
The answer to the above question is negative. Only the following persons domiciled in India and leaving the country shall obtain the certificate:
- A person suspected of being involved in serious financial misconduct whose presence is important for the investigation of Income Tax and Wealth Tax matters and against whom liability to pay tax demand under the act may arise.
- A person liable to pay arrears of tax demand amounting to Rs. 10 lacs or more on which no stay has been granted by any authority.
Effect of proposed amendment in the Union Budget 2024:
Inclusion of reference to liabilities under The Black Money Act, will mean that there are no pending dues in form of tax, penalties or interest under The Black Money Act which the person leaving India is liable to pay. Liabilities under The Income Tax Act, 1961, The Wealth Tax Act, 1957, The Gift Tax Act, 1958 or The Expenditure Tax Act, 1987 were already covered and with the inclusion of The Black Money Act, the government wants to ensure that no person involved in serious offence of financial misconduct leaves the country unless satisfactory measures have been undertaken for payment of outstanding demands.
With the introduction of the above amendment, any person involved in financial frauds and trying to abscond the country will come under the direct purview of the regulatory authorities.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.