Leaving India? Get tax clearance!

Finally, you got that long-awaited letter of appointment from the MNC in the Gulf. But make sure you don't miss out on the income tax clearance certificate in the rush to catch the next flight.

The tax authorities can ask the immigration authorities to stop you from boarding if you do not have one.

All your bags are packed and you're ready to go. Just remember, if you're travelling abroad, you need to get more than your travel plans in order. Yes, your passport, visas, tickets and foreign exchange are all vital, but there's also the possibility that you'll have to produce an income tax clearance certificate before you take off.

This is not something that's always asked for, but on the off chance that the immigration authorities want it, you'll have to be able to produce it on demand at the time of boarding a flight out of the country.

The tax clearance certificate is a notice from the income tax department which states that you have discharged your tax liabilities at the time of your departure and that the department has no objection to your leaving the country.

The immigration authorities ask for this certificate only from certain people, particularly those who are leaving the country for good or for an uncertain period. So if you're headed to the Caribbean for a summer holiday, it's unlikely that you'll be asked for this paper.

The objective of asking for the certificate is to ensure that the government does not lose out on revenue from those who may be leaving the country forever.

Of course, as with all things bureaucratic, it was so far a tiresome business to get this certificate. Now, however, the procedure has been simplified and it's no longer a bothersome task to apply for and get the tax clearance certificate.

So, how does it work? And do you fall in the category of persons who may have to produce the certificate? We take a look.

Indian citizens

If you are a resident Indian citizen and going abroad on a tourist visa, you don't have to bother with getting a tax clearance certificate. Again, you don't need the formal notice if you are travelling abroad for a definite period on a business visa or any other visa.

The tax authorities do not really take notice of such short trips, and you don't need to go through the process of applying for tax clearance.

For immigrants: If you are a resident Indian who is emigrating or going abroad for a very long period on work, you must fulfil the conditions set out in Sub-Section 1A of Section 230 of the Income Tax Act, which came into effect from 1 June 2003.

You have to fill in Form 30C and submit it to the designated tax authority. The form asks for details like your permanent account number, the purpose of your travel and the estimated period of stay abroad.

If you don't have a PAN or if your total income is not liable to tax, submit a self-declared certificate along with Form 30C. This is about all you have to do in this case, as you will not then require any tax clearance certificate from the IT Department.

Once the tax department receives Form 30C, it processes the information and sends you a notice about whether it is necessary for you to obtain a tax clearance certificate or not. The clearance certificate is issued only after a proper verification of your tax status.

In some cases, people involved in serious financial irregularities may want to flee the country without being present during the investigation of cases filed against them by the income tax and wealth tax departments. In such cases, the tax authorities warn the immigration authorities to seek a tax clearance certificate before immigration clearance.

Guarantees: If you are leaving the country to work abroad, a guarantee from your employer may be sufficient to satisfy the tax and immigration authorities. The guarantee can be for a specific period, depending on the terms of your employment, and can also cover one or more trips you may have to make abroad.

In case you plan to migrate to another country, a guarantee from any other person residing and assessed to tax in India can be provided to the income tax authorities.

In both cases (employer guarantee or otherwise), the guarantor becomes responsible for payment of taxes on your behalf and the income tax department can initiate recovery proceedings against the guarantor if you default on tax payments.

Non-Resident Indians

If you are a Non-Resident Indian, you don't need a clearance certificate if you are visiting the country as a tourist or for any purpose not connected with your business or profession.

But if you are not a resident Indian, but visit India in connection with business, profession or employment, and derive income from any source in India, you must apply for a certificate before leaving the country. This is essentially a no-objection certificate (NOC) from the tax department.

To obtain this NOC, you will have to apply for it in Form 30A. This form requires the employer or the person through whom the Non-Resident/foreigner has earned income in India, to provide for a guarantee to pay the taxes payable by the person leaving India, under the Income Tax and Wealth Tax Acts.

The liability of the guarantor will extend to the amount of tax determined as payable on the income earned during the period of employment under the employer or on the income earned from the person, as the case may be.

The NOC in Form 30B is issued almost immediately on receipt of Form 30A and has a specific period of validity.

Responsibility of carrier: If the owner or person who charters a ship or aircraft carrying persons from any place in the territory of India to a place outside India allows the passenger to travel out of the country without making proper inquiry about tax clearance certificate requirement, he can be held personally liable for the payment of taxes outstanding from the person leaving the country.

The income tax authorities will treat the owner or person who charters the ship or aircraft as the assessee in default and initiate proceedings for recovery of tax from that person instead of from the defaulting assessee.

Administration: All of which does not answer the question about how it has become easier to apply for the tax clearance certificate. The answer: the tax department has set up a separate cell to expedite the issue of such certificates. The special cell will also look into priority response given by the assessing officers in carrying out the requisite procedure.

All the forms needed for obtaining the certificate can be downloaded from the income tax department's Web site at www.incometaxindia.gov.in. Once you apply for and receive the certificate (or a no-objection from the authorities), you can pack your bags and get set for your journey. Bon voyage.

The author is a member of Bombay Chartered Accountants' Society. www.bcasonline.org