Income Tax 2025

Appearance

Tax clearance certificate. ​

420(1) ​

Subject to such exceptions as the Central Government may, by notification, specify in this behalf, no person,—

  • (a) who is not domiciled in India;
  • (b) who has come to India in connection with business, profession or employment; and
  • (c) who has income derived from any source in India, shall leave the territory of India by land, sea or air unless he furnishes to such authority as prescribed— (i) an undertaking in the prescribed form from his employer; or (ii) through whom such person is in receipt of the income, to the effect that tax payable by such person who is not domiciled in India shall be paid by the employer referred to in clause (i) or the person referred to in clause (ii), and the prescribed authority shall, on receipt of the undertaking, immediately give to such person a no objection certificate, for leaving India.

420(2) ​

Nothing contained in sub-section (1) shall apply to a person who is not domiciled in India but visits India as a foreign tourist or for any other purpose not connected with business, profession or employment.

420(3) ​

Subject to such exceptions as the Central Government may, by notification, specify in this behalf, every person, who is domiciled in India at the time of his departure from India, shall furnish, in the prescribed form to the income-tax authority or such other authority as prescribed—

  • (a) the Permanent Account Number allotted to him under section 262;
  • (b) the purpose of his visit outside India; and
  • (c) the estimated period of his stay outside India.

420(4) ​

Where no such Permanent Account Number has been allotted to him, or his total income is not chargeable to income-tax, or he is not required to obtain a Permanent Account Number under this Act, such person shall furnish a certificate in such form, as prescribed.

420(5) ​

No person—

  • (a) who is domiciled in India at the time of his departure; and
  • (b) in respect of whom circumstances exist which, in the opinion of an income-tax authority render it necessary for such person to obtain a certificate under this section, shall leave the territory of India by land, sea or air unless he obtains a certificate from the income-tax authority stating that he has no liability under this Act, or the Wealth-tax Act, 1957 or the Gift-tax Act, 1958 or the Expenditure-tax Act, 1987 or the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, or that satisfactory arrangements have been made for the payment of all or any of such taxes which are or may become payable by that person.

420(6) ​

No income-tax authority shall make it necessary for any person who is domiciled in India to obtain a certificate under this section unless—

  • (a) he records the reasons therefor; and
  • (b) obtains the prior approval of Principal Chief Commissioner or Chief Commissioner.

420(7) ​

If the owner or charterer of any ship or aircraft carrying persons from any place in the territory of India to any place outside India allows any person to whom sub-section (1) or (5) applies to travel by such ship or aircraft without first satisfying himself that such person is in possession of a certificate as required by those sub sections, he shall be personally liable to pay the whole or any part of the amount of tax, if any, payable by such person as the Assessing Officer may, having regard to the circumstances of the case, determine.

420(8) ​

In respect of any sum payable by the owner or charterer of any ship or aircraft under sub-section (7),—

  • (a) the owner or charterer, shall be deemed to be an assessee in default for such sum; and
  • (b) such sum shall be recoverable from him in the manner provided in this Part as if it were an arrear of tax.

420(9) ​

The Board may make rules for regulating any matter necessary for, or incidental to, the purpose of carrying out the provisions of this section.

420(10) ​

In this section, “owner” and “charterer” include any representative, agent or employee empowered by the owner or charterer to allow persons to travel by the ship or aircraft.

Explanation

Section Summary: ​

Section 420 of the new income tax law in India governs the requirement for obtaining a tax clearance certificate before leaving India. It applies to individuals who are either not domiciled in India but have income from Indian sources, or domiciled in India but are departing the country under certain circumstances. The section ensures that individuals with potential tax liabilities do not leave India without either paying their taxes or making satisfactory arrangements for payment.

Key Changes: ​

  1. Expanded Scope: The new law explicitly includes individuals who are not domiciled in India but have income derived from Indian sources. This was not as clearly defined in prior laws.
  2. Stricter Compliance: The law now requires employers or income providers to furnish an undertaking to pay taxes on behalf of non-domiciled individuals, ensuring tax liabilities are addressed.
  3. New Exceptions: The Central Government can specify exceptions to these rules via notifications, providing flexibility.
  4. Liability on Transport Operators: Owners or charterers of ships or aircraft are now personally liable if they allow individuals to travel without the required tax clearance certificate.

Practical Implications: ​

  1. For Non-Domiciled Individuals:

    • If you are not domiciled in India but have income from Indian sources (e.g., salary, business, or profession), you must provide an undertaking from your employer or income provider before leaving India.
    • This ensures that your tax liabilities are either paid or will be paid by the employer/income provider.

  2. For Domiciled Individuals:

    • If you are domiciled in India and are leaving the country, you may need to furnish your Permanent Account Number (PAN), purpose of visit, and estimated stay duration.
    • In certain cases, you may also need a tax clearance certificate if the income-tax authority deems it necessary.

  3. For Transport Operators:

    • Owners or charterers of ships or aircraft must verify that passengers have the required tax clearance certificates. Failure to do so can result in personal liability for unpaid taxes.

Critical Concepts: ​

  1. Domiciled vs. Non-Domiciled:

    • Domiciled in India: A person who is a resident of India under the Income Tax Act.
    • Non-Domiciled in India: A person who is not a resident of India but may have income from Indian sources.

  2. Undertaking:

    • A formal commitment by the employer or income provider to pay the taxes owed by the non-domiciled individual.

  3. Tax Clearance Certificate:

    • A certificate issued by the income-tax authority confirming that the individual has no tax liabilities or has made satisfactory arrangements to pay them.

  4. Liability of Transport Operators:

    • If a transport operator allows a person to travel without the required certificate, they may be held personally liable for the unpaid taxes.

Compliance Steps: ​

  1. For Non-Domiciled Individuals:

    • Obtain an undertaking from your employer or income provider.
    • Submit the undertaking to the prescribed authority to receive a no objection certificate before leaving India.

  2. For Domiciled Individuals:

    • Furnish your PAN, purpose of visit, and estimated stay duration to the income-tax authority.
    • If required, obtain a tax clearance certificate confirming no tax liabilities or satisfactory arrangements for payment.

  3. For Transport Operators:

    • Verify that passengers have the required tax clearance certificates before allowing them to board.
    • Maintain records of these verifications to avoid personal liability.

Examples: ​

  1. Non-Domiciled Individual:

    • John, a U.S. citizen, works in India for 6 months and earns a salary. Before leaving India, his employer provides an undertaking to pay his taxes. John submits this to the prescribed authority and receives a no objection certificate, allowing him to leave India.

  2. Domiciled Individual:

    • Priya, an Indian resident, is moving to Canada for a job. She provides her PAN, purpose of visit, and estimated stay duration to the income-tax authority. Since she has no tax liabilities, she is not required to obtain a tax clearance certificate.

  3. Transport Operator:

    • An airline allows a passenger to board without verifying their tax clearance certificate. Later, it is discovered that the passenger had unpaid taxes. The airline is held personally liable for the unpaid amount.

This section ensures that tax liabilities are addressed before individuals leave India, reducing the risk of tax evasion. It also places responsibility on employers, income providers, and transport operators to ensure compliance.