A person leaving India by land, sea or air is required to obtain from the Competent Authority a certificate that he has no liabilities under the direct tax laws or that he has made satisfactory arrangement for payment of his existing liabilities as also for payment of the lax that may become payable by him. The persons requiring income tax clearance arc those:

(I) Not domiciled in India provided they have stayed in India over a period of 120 days. Generally, a person holding a foreign passport is considered as not domiciled in India;

(ii) Domiciled in India at the time of departure but-

(a) Intends to leave India as an Emigrant; or

(b) Intends to leave India on a work permit for employment or occupation abroad; or

(c) In respect of whom income tax authority considers that a clearance is necessary.

Case 1 was intended to facilitate collection of taxes from foreigners in respect of income that they may have earned during their stay in India. Case 2 was also intended to ensure that residents do not leave India without discharging their tax liabilities. However, over time the machinery for issuing such clearances has degenerated often leading to complaints of harassment and unethical behavior. In fact, international travel guides advice foreign tourist to budget for a certain sum to obtain such clearances. This is indeed an inhibiting factor for foreign tourists to visit India and stay long periods. It is also learnt from a cross section of officers and staff in the Department that they have yet to come across any case where such a clearance has facilitated recovery of taxes.

India has a network of treaties for avoidance of double taxation. These treaties do not provide for any bilateral arrangement for assistance in tax recovery by one country from the residents of another country. It is now learnt that OF.CD has proposed the incorporation of such an arrangement in all treaties and therefore India will have to renegotiate for this purpose.

The Group on Tax Policy and Tax Administration set up by the Planning Commission under the chairperson Dr. Parthasarathi Shome has recommended that the requirement to obtain tax clearance by foreign tourists must be dispensed with immediately. The Task Force also discussed this issue and endorsed the view of the Group.

It is therefore recommended that the present requirement of obtaining a tax clearance certificate before leaving the country must be abolished. However in order to protect the interest of revenue, we can continue to allow the income tax authorities to notify the immigration/custom authorities to prevent any particular person from leaving the country if such person is considered to be a proclaimed offender. As a result, only a handful of notified persons will be subjected to the process of tax clearance as against the present practice of requiring all and sundry to comply with the requirement of obtaining tax clearance before leaving the country.

Application for the tax clearance is required to be made to the Assessing officer having jurisdiction over his case in a specific form. This form brings out the state of tax compliance by the concerned person. On receipt of the form, the Assessing Officer verifies from his records the facts stated therein. He looks into the position regarding payment of taxes, assesses cooperation in completing assessment and whether he was penalized or prosecuted. Thereafter, the Assessing Officer on the Application form records the certificate of tax clearance.

The certificate is valid for one year. Application for fresh certificate can be made one month prior to the date on which the validity of the previous certificate is due to expire. Those firms of repute who have clean tax records are by Government notification exempted from the production of income tax clearance certificate. Such exemption certificate is issued on the recommendation of the Commissioner.

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