Earlier, many transactions required obtaining an Income-Tax Clearance Certificate. For instance, while filing a tender for government works, registration of immovable properties, renewal of import/export licences, renewal of post licences and renewal of shipping licences. With liberalization, all these have been dispensed with. Now, taxpayers are only required to quote their Permanent Account Number (PAN) in their tender or other relevant documents.
There are a very few transactions, however, where obtaining an Income-Tax Clearance Certificate (or similar certificate) is currently required under the Income-Tax Act, 1961.
Here they go:
Certificate under Section 281 of the Act:
“The Income-Tax Act provides that if any person transfers or alienates any property while any proceedings under the Income-Tax Act is pending, such transfer/alienation is void as against demand from income-tax unless (a) the transaction is for adequate consideration and without notice of pending proceedings/demand; or (b) with previous approval of the tax officer,” says Ashok Shah, Partner, N.A Shah Associates LLP.
# This provision, however, does not apply to stock in trade.
# In a large property transaction or sale of business, it is an usual practice of the purchaser to insist on the seller for obtaining such a certificate, as the purchaser does not want to get involved in the controversy with the tax department later on.
Certificate under Section 195/197 of the Act:
# The Income-Tax Act provides that any person who is making any payment/crediting any amount to the non-resident, then he is required to withhold tax, if such amount is liable to tax in India in the hands of such a recipient.
# “If a person makes remittance without deduction of tax at source and later on the tax department holds that such payment was liable to tax in India, remitter is made liable for such tax,” says Shah.
# Hence, if the remitter wants certainty, he can approach the tax officer for the issue of certificate and remit the amount in accordance with such a certificate.
# Similarly, the recipient can also approach the IT Department for grant of a certificate for receipt of money without deduction of tax at source.