In the Union Budget for 2024, the central government made it mandatory for people leaving India to obtain a no-liabilities clearance certificate with respect to black money. This provision has created confusion amongst wealthy individuals regarding situations where such a certificate is mandatory and whether Indian residents going on a foreign holiday or work assignment overseas need to obtain the same. Moneycontrol explains the provision and its impact.
What are the changes?
To be sure, tax clearances are already mandatory for non-residents and certain residents leaving India. The no liabilities certificate is mandatory for income tax, wealth tax, expenditure tax and gift tax. Now the government has extended the scope of this to tax liabilities under Black Money Rules, 2015.
The tweak is to ensure that no one having tax liabilities under the Black Money rules will leave the country without a clearance from the authorities. However, the rules under Section 230 apply differently to residents and non-residents.
How does it impact Indian citizens who renounce citizenship and leave permanently?
The budget tweak doesn’t impact Indians who are giving up their citizenship for a foreign country citizenship. As per Indian law, any person who obtains a foreign nationality needs to surrender the Indian passport. Following this, the resident would have to apply for a renunciation certificate with the Indian government. Once the application is made, the Ministry of Home Affairs and local police run a background check on the person and if there are any pending cases or tax liabilities, the same is flagged while deciding if the person is eligible for renunciation. Not renouncing Indian citizenship after gaining a foreign citizenship is prohibited under the law. Also, if the citizenship is not surrendered, the resident will have to keep paying taxes on India income and keep filing the tax returns. So, Indian citizens going overseas permanently already go through the verification process.
How does it impact Indian citizens visiting overseas ?
Lakhs of Indians travel every year overseas for various purposes including vacations, to visit family members overseas and even to work. For such visits, it is mandatory to file Form 30C with the Income tax department disclosing PAN number, place of visit and purpose of visit before leaving the country. Some people overlook filing this form since it is not asked for by the authorities of the other country. However, if the tax department in future gains the knowledge of the foreign trip and has a reason to believe that tax evasion happened, they initiate action against the resident. For the people who file 30C form, no tax liability certificate is required, hence the budget proposal doesn’t impact them.
However, if an individual is facing tax or anti-money laundering probes in India, the authorities can make it mandatory for the specific individual not to leave the country without obtaining the clearance. In such cases, the resident will now also need to obtain a no liabilities certificate under the black money rules. Residents who need such clearance include people who have had any participation in financial irregularities or people who are part of ongoing investigations. Even residents who have tax arrears (unpaid taxes) exceeding Rs 10 lakh need such approval. A resident can be put on such a watch list only after a written permission from the chief commissioner of the Income Tax citing reasons why such a restriction should be imposed on the resident.
What is the Impact on non-residents and foreigners leaving India?
In case of a non-resident leaving the country, requirement of tax clearance depends on purpose of the visit. Non domiciled people who visit India for non-commercial purposes: like tourism or visiting family/friends need no such clearance. However, in cases where the non-resident has earned income in India, this clearance becomes necessary.
This includes situations where a foreign national has been hired by an Indian company for a job or a foreign national starts a business in India and earns income. Such foreign individuals now will have to also get an additional clearance certificate in terms of black money over and above the existing requirement to obtain no dues for liabilities under income tax and wealth tax.
How to obtain the no-liabilities certificate?
Non-residents who have earned an income in India need to file a Form 30A with the Income Tax department before leaving the country. After the submission of mandatory documentation, if the tax officer is satisfied with the information provided, Form 30B is issued by the officer. This 30B form is a no-liabilities certificate. This form has to be filed manually with the tax department.
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