Understanding All About Income Tax Clearance Certificate

For a long time, an income tax certificate has been a crucial document used in various transactions, including registering real estate purchases, bidding for government projects, renewing an export and import license, or obtaining a shipping license. However, after the PAN card has been issued, the use of the Income Tax clearance certificate has been limited; however, there are aspects where this certificate is still in use.

In this blog, we will explore all aspects of the ITCC, from its definition to the process of obtaining one, the required documents, and more.

What is an Income Tax Clearance Certificate?

This certificate is a crucial document that confirms the person presenting it has fulfilled all tax obligations and is no longer liable for taxes. It also indicates that the individual is taking responsibility for any future tax liabilities. The Indian government's revenue departments issue the ITCC and confirm that the individual or company has complied with their tax obligations as of the date mentioned in the certificate.

Anyone who meets the following eligibility criteria can obtain a Tax Clearance Certificate:

• The concerned person is not domiciled in India
• He or she is visiting India for business or vocation
• The person or the company has generated income from an Indian source

In simpler terms, anyone who is not a resident of India but has their source of income from India, be it business or employment.

An income tax clearance certificate covers sales tax, unemployment tax, corporation tax, and other taxes, depending entirely on the particular state's tax regulatory framework.

After assessing all the information, if the income tax officer is satisfied, an ITCC will be issued in Form 30B to the applicant. This document will also provide information about ITCC's validity.

One thing to note is that a person residing in India generally does not need an ITCC to travel they must furnish their PAN card and provide the reason for travelling outside India. However, if the authorities discover that the party involved in any of the financial irregularities in such cases has not obtained an income tax clearance certificate, they can request one.

Please note that the Central Board of Direct Taxes (CBDT) has clarified that, under Section 230, it is not mandatory to obtain an ITCC for persons or companies domiciled in India before leaving the country. The amendment took effect on October 1, 2024.

Who Requires an ITCC?

Individuals who are not residing in India or are Indian citizens but have income from India via any legitimate means are required to obtain an income tax clearance certificate as per the income tax laws.

Hence, the three criteria are:

1. Individuals who are not citizens of India.
2. Visiting India for employment, professional, or business purposes.
3. Has derived an additional source of income from India.

One thing to note is that while travelling outside India, this certificate is required for non-domiciled individuals, not Indian citizens. Indian citizens are not required to have an ITCC unless the Income Tax Department of India directs them to obtain one.

How to Obtain an Income Tax Clearance Certificate?

To obtain an income tax clearance certificate, the applicant must file a proclamation with their employer or the source from which they are receiving income in India. NRIs, non-resident indian, are required to submit an undertaking in a required format, Form 30A. The source from which the person received the income will be required to commit to covering any taxes due by the expatriate after they have left the country.

If the income tax officer is fine with all the information provided, he will issue the income tax clearance certificate on firm 30B.

Documents Required for the Income Tax Clearance Certificate

Prepare all the documents mentioned below to apply for the Income Tax Clearance Certificate (ITCC).

• Application form 30A: The applicant must ensure that all the details on this form are accurate and correct.
• Passport Copy: A copy of your valid passport is required for travel and identification purposes.
• Proof of Tax Payment: The applicant also needs to provide all the evidence for all the tax payments made in India, including the ITR for the last three years.
• PAN Card Copy: To obtain an Income Tax Clearance Certificate (ITCC), a copy of your PAN card is required for verification and identification purposes.
• Other Financial Documents: However, the final list of documents depends on the circumstances of the application; you might also ned to submit investment proof, salary slips, bank statements, or more.

Tax Clearance for Non-Domiciled Individuals

For individuals who are not domiciled in India, a different process is needed to obtain the income tax clearance certificate. The applicant and the employer must submit Form 30A and acknowledge that they will subsequently provide a statement for any tax liabilities that arise after departure.

Once the tax office reviews the application, it will issue a No Objection Certificate (NOC), also known as a Tax Clearance Certificate (TCC), in Form 30B. The prime objective of this certificate is to confirm that you have met all your tax obligations up to your departure.

What is Form 30C in Income Tax?

Generally, as mentioned above, Indian residents are not required to obtain an ITCC when travelling abroad for any reason, and a PAN Card is sufficient in all situations. However, they are required to file Form 30C stating the duration and the purpose of their trip.

Circumstances when a domiciled person is asked to get an Income Tax Clearance certificate (ITCC):

• These individuals are involved in financial or tax irregularities, and the authorities need their presence for a legal investigation.
• They have any outstanding tax areas exceeding Rs. 10 lakh, and no authority has stayed it.

In a nutshell, an Indian citizen or resident is now required to obtain an ITCC; however, if they are involved in any serious financial misconduct or are under investigation, the Income Tax Department may order them to obtain the certification before departing the country.

Is It Mandatory to Submit Form 30C?

If a domiciled resident is travelling out of India to any foreign country without the intention of permanently settling there, then yes, that individual must file Form 30C and furnish their PAN card details.

Who Issues the Tax Clearance Certificate?

The revenue department of the concerned state government is authorized to issue an income tax clearance certificate in the name of the relevant individuals.

What Are the Uses of an Incoem Tax Clearance Certificate?

An income tax clearance certificate plays a crucial role in fulfilling tax obligations.

• Business transactions: Large corporations, government agencies, and other businesses ask for the ITCC.
• Loan Applications: In some cases, a bank or financial institution may request an income tax clearance certificate when applying for a loan. This certificate serves as proof that the identification has duly met its tax obligations.
• Tendering for Contracts: When bidding for government contracts and large private tenders, a Tax clearance certificate may be required.
• Property Transactions: For high-value property transactions, you will need a tax clearance certificate.
• Legal Proceedings: In cases of financial settlement and disclosure. The applicant will need an Income Tax Clearance Certificate, which is requested to confirm the compliance status.

Final Words

An income tax clearance certificate is required to clear a person's tax liability. However, Indian residents don't need to obtain one, but non-residents do. And anyone who has applied for it will only get it after they have cleared their due taxes and have submitted all the necessary documents. If you haven't applied for an Income Tax Clearance Certificate online yet, this is the sign to apply for an ITCC online.