New Tax Clearance Requirement for Indian Travelers Effective October 1

Starting October 1, Indian residents planning to travel abroad will face stricter requirements, as they must now obtain a tax clearance certificate before departure. This new regulation, announced in the Union Budget 2024, mandates compliance under the Black Money Act to curb tax evasion.

Obligations Under Section 230 of the Income-Tax Act

According to Section 230 of the Income-tax (I-T) Act, individuals residing in India must secure a certificate from the tax authorities. This certificate verifies that the traveler has settled all tax dues or has made arrangements to clear any outstanding liabilities.

Comprehensive Tax Scope

The clearance requirement extends beyond the Income-tax (I-T) Act, encompassing taxes from the former Wealth Tax, Gift Tax, and Expenditure Tax Acts. This inclusive measure ensures that all pertinent taxes are addressed when issuing the certificate.

Anticipated Clarifications

Tax professionals expect further guidance through upcoming notifications or detailed rules, as reported by the Times of India. These guidelines are anticipated to streamline the process and facilitate compliance with the new regulations.

Amendments to Penalties for Unreported Foreign Assets

The 2024 Budget introduces significant changes to penalties under the Black Money Act. From October 1, 2024, the Rs.10 lakh penalty for failing to report foreign assets (excluding real estate) worth less than Rs.20 lakh will be eliminated. This change is intended to ease compliance for individuals with smaller foreign holdings.

Foreign Asset Reporting Requirements

Residents, particularly those who are ordinarily residents of India, are required to declare all foreign assets, including investments such as shares and securities, and any income derived from these assets when filing their Income Tax Return (ITR). Failure to report these foreign assets or income, or to submit the corresponding ITR, could result in a Rs.10 lakh penalty under sections 42 or 43 of the Black Money Act.

However, there is an exemption for bank accounts with a total balance not exceeding Rs.5 lakh at any time during the previous year, offering some relief for individuals with minimal foreign holdings.

Impact on Travelers

These new rules have significant implications for Indian citizens planning to travel abroad. Ensuring compliance with tax obligations before departure is now essential. Travelers are advised to stay informed about the evolving guidelines to avoid last-minute issues.

The new measures introduced in the 2024 Union Budget aim to enhance the enforcement of tax laws and improve overall compliance. With further clarifications and amendments expected, Indian residents must adhere to these stricter requirements to avoid penalties and ensure a smooth travel experience abroad.