To strengthen the regulation of foreign assets and ensure tax compliance, the 2024 Union Budget has introduced new rules regarding clearance certificates for individuals domiciled in India who are departing the country.

Starting October 1, 2024, these individuals will need to obtain a clearance certificate under the Black Money Act.

This certificate will verify that the individual has no outstanding tax liabilities or has made satisfactory arrangements to settle such dues before leaving India.

The new regulations mark a shift in how India addresses the issue of undisclosed foreign assets.

According to Central Board of Direct Taxes (CBDT) Chairman Ravi Agarwal, the amendments in the Black Money Act are designed to provide relief to taxpayers from penalties in cases where they fail to disclose overseas assets worth ₹20 lakh.

Under current regulations, taxpayers face a ₹10 lakh penalty for failing to disclose a foreign asset worth as little as ₹5 lakh.

Current regulations

Under Section 230 of the Income-tax (I-T) Act, individuals domiciled in India must already secure a certificate from tax authorities confirming that they have no unresolved tax obligations.

This applies to taxes under the Income-tax Act, as well as the former Wealth Tax, Gift Tax, and Expenditure Tax Acts.

The certificate is mandatory when an income-tax authority deems it necessary based on the individual’s circumstances.

Changes introduced

The new budgetary measures add an additional layer of scrutiny by requiring a clearance certificate specifically under the Black Money Act

for those leaving India.

This measure aims to enhance compliance with tax regulations and curb the flow of black money.

This change aligns with updated requirements for disclosing foreign assets and income in Income Tax Returns (ITRs), effective October 1, 2024.

What’s required and what not

Individuals domiciled in India, who are leaving the country, must obtain a tax clearance certificate.

Residents must disclose all foreign assets, including investments like shares and securities, as well as any income generated from these assets when filing their ITRs.

Amit Maheshwari, Tax Partner at AKM Global, emphasised that the ‘Black Money Act’ will now be a factor in determining if a resident needs a tax clearance certificate before leaving India.

Aarti Raote, Partner at Deloitte India, highlighted that a tax clearance certificate is required for individuals repatriating from India for employment or settling overseas permanently.

With the inclusion of the Black Money Act, there is an additional requirement to ensure that the resident taxpayer has accounted for all taxable income in India, confirming that no income escapes tax.

The new section mandates taxpayers to confirm that no dues are pending or that satisfactory arrangements have been made for tax payments.

The law clarifies that it doesn’t apply to foreign residents visiting India for tourism.

This certificate is necessary for expatriates who have worked in India temporarily.

Now, they must also obtain clearance for no dues under the Black Money Act.