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Income tax clearance certificate: an insight

At the time of leaving India, there is an important obligation for individuals to obtain an income tax clearance certificate

In an era of rapid globalization, India has witnessed significant increase in the number of deputations or secondments to fulfil the organizational demands of having the right employees with appropriate skill-sets at the right location. More and more Indians are going overseas for employment and, similarly, an increasing number of expatriates or foreign citizens are coming to India for work-related matters. As organizations grow and become more global in nature, employment issues become more complex. One of the challenges that businesses face today is compliance with multifaceted tax laws and labour regulations.

At the time of leaving India, there is an important obligation for individuals to obtain an income tax clearance certificate (ITCC).

In common parlance, an ITCC is an income-tax clearance certificate/no-objection certificate (NOC) issued by the tax authorities certifying that a person who is leaving India has no tax dues in India or has made satisfactory arrangements in order to discharge any tax liability that may arise in the future.

According to the relevant provisions under the Indian tax law, a person who is not domiciled in India and has come to India in connection with any business, profession or employment, and has any income derived from India, is required to obtain an ITCC before repatriating to his/her home country. This can be done by filing a declaration through the employer or through whom such person is in receipt of the income in India.

On the contrary, people who are domiciled in India are only required to furnish permanent account number (PAN), the purpose of visit outside India and estimated period of stay outside India in case of travel abroad for the purpose of deputation or secondment.

A tax clearance certificate is not mandatory for most Indian nationals and residents. However, such a person is required to obtain an ITCC in following situations:

(i) Involvement in serious financial irregularities and his/her presence is necessary for investigation of cases under the law and it is likely that a tax demand would get materialized, or

(ii) Such a person has direct tax arrears of more than 10 lakh which have not been stayed by any authority.

A person not domiciled in India may obtain an ITCC from the jurisdictional tax officer on submitting an undertaking in the prescribed form i.e. Form 30A. Such undertaking should be from the employer or person from whom income is received, to the effect that all the tax dues which may become payable by such expatriate after leaving India would be discharged by the employer or such person.

On receipt of such an undertaking, along with relevant documents, the concerned tax officer, if satisfied with the information furnished to him, may issue an ITCC to the applicant expatriate in Form 30B which is valid for the period mentioned therein.

On the other hand, persons domiciled in India are only required to furnish their tax registration number i.e. PAN, purpose of visit outside India and estimated period of stay outside India. The said information is to be submitted in a specified form i.e. Form 30C, which is filed with the concerned tax officer before departure.

As discussed above, the requirement to obtain an ITCC is mandatory by law in specified situations and non-compliance may attract penal or other consequences.

In the absence of an ITCC from the tax authorities (wherever required), the tax authorities may direct the immigration authorities to stop a person from leaving the territory of India by land, sea or air unless he obtains such a certificate.

In a recent ruling of Kerala high court in the case of Mailakkattu Varghese Uthup, a former director of a company who was held liable for the tax dues of the company, was restricted from leaving India by virtue of relevant provisions related to obtaining an ITCC.

Also, non-compliance with the aforesaid requirement of obtaining an ITCC may hamper or pose a delay in getting an Indian visa for subsequent visit(s) to India on business/profession or for employment purposes.

In light of the above consequences, it is advisable to duly comply with the applicable provisions before leaving India for good.

FAQs

1.Is it mandatory for every person not domiciled in India to obtain an ITCC before leaving the country?

No, it is imperative to note that a person not domiciled in India but on a visit to India as a foreign tourist or for any other purpose not connected with business/ profession or employment is not required to obtain an ITCC from the tax authorities.

2.Is it mandatory for every person domiciled in India to file Form 30C before leaving the country?

No, this requirement is not applicable for Indian citizens going outside India for personal reasons like tourism, meeting any relative outside India, etc.

3.What all documents/information is required to be submitted along with the undertaking in Form 30A from employer/person from whom income is received?

The relevant provisions do not prescribe list of documents. However, from experience the tax authorities generally ask the below mentioned documents in order to accept an application for obtaining an ITCC:

a) Copy of income tax return(s);

b) Copy of withholding tax certificate issued by the employer;

c) An ‘affidavit’ stating relevant details like passport number/validity, bank details etc.;

d) Copy of passport and visa;

e) Certificate on employer’s letterhead stating the details of actual taxes deposited on behalf of such expatriate;

g) Copy of employment contract;

i) Copy of PAN card;

j) Copy of air ticket.

The above list is not exhaustive and the tax authorities on their discretion, may ask for any other additional information/ document(s).

Akhil Chandna and Ajay Arora contributed to this article.

Vikas Vasal is national leader tax–Grant Thornton India LLP. You can send your queries to vikas.vasal@in.gt.com

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