Section 420 of Income Tax Act, 2025 : Tax clearance certificate.

published by | February 18, 2025

(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.

(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.

(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.

(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.

(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.

(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.

(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 subsections, 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.

(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.

(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.

(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.

✉ Overview, Analysis and Simplified presentation of Section 420 of Income Tax Act, 2025

Section 420 of the Income Tax Act, 2025, lays down rules regarding tax clearance certificates required for individuals leaving India, including exceptions specified by the Central Government. It applies to both domiciled and non-domiciled individuals.

📅 Key Provisions

Category Requirement
Non-domiciled persons :
Came to India for business,  profession or employment
                             +
Has derived income from any source in Indi

Such Non Domiciled person, before leaving India: 
Must provide an undertaking in the prescribed form from their employer or from the person from whom such non-domiciled person earned the income that:
The employer or such other person will pay the tax which will be payable by such Non-Domiciled person.

Upon receipt of such undertaking, the authority will issue the no objection certificate on the basis of which such non domiciled person may leave India.
Foreign tourists & visitors Leaving India Non-Domiciled person who visits India as a tourist or for any purpose other than business, profession or employment are exempt from tax clearance certificate requirements.
Domiciled individuals Leaving India Must furnish PAN, purpose of visiting the foreign country, and estimated stay period outside India, before leaving India to Income Tax Authority or any other authority as may be prescribed.
Indian Domiciled person with No PAN or no taxable income leaving India If a Domiciled person doesnt have a PAN Card or doesnt have a Income exceeding the taxable exemption limit, then such person must provide a prescribed certificate instead at the time of leaving India.
Indian Domiciled Persons with outstanding tax liabilities or requiring certificate in the opinion of Income Tax Authority, Leaving India  Such Indian Domiciled person before leaving India must provide a certificate that he doesnt have any outstanding tax liability or that satisfactory arrangements are being made for any tax liability which might be payable by such person
Ship or aircraft operators Must ensure passengers have required tax clearance; otherwise, they are personally liable for unpaid taxes.

✅ Exemptions

  • Foreign tourists and visitors on non-business purposes do not need a tax clearance certificate.

  • Individuals with no taxable income or who are not required to have a PAN must provide a certificate in the prescribed form.

📄 Certificate Requirement for Domiciled Individuals

Condition Requirement
Has a PAN Must provide PAN, visit purpose, and stay duration.
No PAN or not liable for tax Must submit a prescribed certificate.
Has pending tax liabilities Must obtain clearance from income-tax authorities before leaving India.

🛠️ Special Conditions

  • Income-tax authorities cannot demand a tax clearance certificate unless they record the reasons for doing so and obtain prior approval from the Principal Chief Commissioner or Chief Commissioner, as required by sub-section (6).

  • If ship or aircraft operators allow passengers to travel without proper clearance as required under sub-section (7) and (8), they may be held responsible for unpaid taxes and treated as defaulters in accordance with the prescribed liability and recovery process.

📃 Rules & Regulations

  • The Central Government may notify exceptions.

  • The Income Tax Department can frame rules for implementation.

🌟 Examples

  1. Non-Domiciled Individual with Business Income:

    • John, a US citizen working in India, plans to leave the country. His employer must provide an undertaking that he will pay any tax which will be payable by John, on receipt of such undertaking from the employer, John will be issued the tax clearance certificate.

  2. Indian Citizen with Outstanding Taxes:

    • Riya, an Indian resident with pending income tax dues, needs to provide a certificate to the Income Tax Authority that she has deposited all the tax liability or the arrangements are being made with respect to any tax which will be payable by her, for clearance from the tax authorities before traveling abroad.

  3. Tourist Visiting India:

    • Emma, a tourist from the UK visiting India for leisure, does not need a tax clearance certificate when leaving.

 ❓ Frequently Asked Questions (FAQs)

  1. Who needs a tax clearance certificate under Section 420?

    • Any non-domiciled individual visited India for business, profession or employment with income from India and domiciled individuals meeting specified conditions.

  2. Do tourists need a tax clearance certificate?

    • No, foreign tourists visiting India for non-business purposes are exempt.

  3. What documents are required for tax clearance for domiciled persons leaving India?

    • PAN, visit purpose, stay duration outside India, or a prescribed certificate if PAN is unavailable.

  4. Can I leave India if I have pending taxes?

    • No, you need clearance from the income tax department first.

  5. What happens if airlines let passengers travel without clearance?

    • The airline may be held liable for unpaid taxes and treated as a assessee in default.

 

This guide ensures you comply with tax clearance rules before leaving India. Always check with authorities for specific requirements.

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