Is tax clearance mandatory before foreign travel? What the Income-Tax Act, 2025 says

The rollout of Form No. 157 (Application for Issue of Income-Tax Clearance Certificate) and Form No. 159 (Income-Tax Clearance Certificate) under the Income-Tax Rules, 2026, effective from April 1, 2026, has triggered considerable debate and, in many cases, avoidable anxiety among taxpayers.

A growing narrative suggests that every individual travelling abroad must now obtain an Income-Tax Clearance Certificate (ITCC). However, a closer and legally grounded reading of the Income-Tax Act, 2025 read with binding CBDT instructions, makes it clear that this perception is misplaced. The need for obtaining a tax clearance certificate is still narrowly targeted and far from universal.

Why the confusion has arisen

The source of confusion lies largely in the introduction of procedural forms. Rule 228(4) now prescribes Form No. 157 as the application for a certificate under Section 420(4) of the Income-Tax Act, 2025 , and Form No. 159 as the income-tax clearance certificate itself. The mere notification of these forms has led many to assume that a new compliance obligation has been created for all outbound travellers.


This assumption, however, does not align with the statutory framework. Forms, by their nature, are an operational requirement. The obligation must flow from the Act, not the Rules.

What Section 420 actually provides

Section 420 of the Income-Tax Act, 2025 substantially continues the legislative framework that existed earlier under Section 230(1A) of the Income-Tax Act, 1961. A careful reading reveals a clear two-tier structure.

At the first level, Section 420(3) imposes only a basic disclosure requirement. A person domiciled in India at the time of departure is required to furnish the Permanent Account Number (PAN), the purpose of travel, and the estimated duration of stay outside India. This requirement is purely informational in nature and does not, in any manner, amount to a clearance mechanism.

The second level, contained in Sections 420(4) and 420(5), deals with the exceptional requirement of a certificate. Even here, the law is carefully calibrated. A certificate may be relevant only in limited cases like, where a person does not have a PAN or is otherwise outside the tax net, or where the income tax authority forms an opinion that such a requirement is necessary in the facts of the case.

Crucially, this power is not absolute. Section 420(6) introduces an important procedural safeguard: no person can be required to obtain such a certificate unless the income tax authority records reasons for doing so and obtains prior approval from the Principal Chief Commissioner or Chief Commissioner.

This layered control mechanism underscores a key legislative principle—tax clearance is intended to be an exception, not a default condition for travel.

No substantive departure from the earlier law

It is important to recognise that Section 420 is not a new policy intervention. It is a continuation of Section 230(1A) of the repealed Income-tax Act, 1961. The legislative intent remains unchanged: ordinary travel should not be impeded, while the tax administration retains the ability to act in cases where revenue interests are at risk.

Thus, the shift to the 2025 Act has not expanded the scope of tax clearance requirements; it has merely carried forward the existing framework.

What CBDT Instruction No. 1/2004 says

Both Section 420(3) of the Income-Tax Act, 2025 and its predecessor, Section 230(1A) of the Income-Tax Act, 1961, begin with the phrase “subject to such exceptions as the Central Government may, by notification, specify.” While the statute itself does not enumerate these exceptions in detail, their scope has been clarified through administrative guidance.

In this context, paragraph 3 of CBDT Instruction No. 1/2004 assumes significance. It provides that a tax clearance certificate may be required only in specific circumstances, namely:

• (i) where the person is involved in serious financial irregularities and their presence is necessary for investigation, and it is likely that a tax demand will arise; or
• (ii) where the person has outstanding direct tax arrears exceeding ₹10 lakh which have not been stayed by any authority.

Even within these categories, the requirement is not automatic. The competent authority must be satisfied that the individual’s departure is likely to prejudice the interests of revenue. Only on satisfaction of this point, the process of requiring a tax clearance certificate can be initiated.

Why CBDT’s 2004 instruction continues to apply to Section 420

A critical and often overlooked aspect of the legal position lies in Section 536 of the Income-Tax Act, 2025, which deals with repeal and savings.

Section 536(2)(j) expressly provides that any instruction, direction, circular, or order issued under the repealed Income-Tax Act shall continue to remain in force, so far as it is not inconsistent with the provisions of the new Income-Tax Act.

This saving clause has direct and significant implications. It ensures that CBDT Instruction No. 1/2004 dated February 5, 2004 continues to apply to Section 420, as the corresponding provision under the new Act.

The legal force of this instruction is further reinforced by Section 119 of the Income-Tax Act, 1961, which empowers the CBDT to issue instructions for the proper administration of the Act. Such instructions are binding on income-tax authorities.

By virtue of Section 536 of the 2025 Act, this binding character carries forward into the new regime. Consequently, tax authorities administering Section 420 are not merely guided but legally bound by the limitations laid down in Instruction No. 1/2004.

Consistent government position over time

The Central Board of Direct Taxes (CBDT), through a press release dated August 20, 2024, addressed similar misconceptions. It categorically clarified that it is incorrect to suggest that all Indian citizens must obtain an Income Tax Clearance Certificate (ITCC) before travelling abroad. The requirement, as reiterated in CBDT Instruction No. 1/2004, applies only in rare and specific circumstances, and the underlying legal framework remains unchanged.

What this means for travellers: the final word

A combined reading of Section 420 of the Income-Tax Act, 2025, the saving provision under Section 536, and the continuing applicability of CBDT Instruction No. 1/2004 leads to a clear conclusion that Income Tax Clearance Certificate (ITCC) is required only in exceptional circumstances and not as a routine pre-condition for foreign travel. ”.

The introduction of Forms 157 and 159 is procedural, not substantive, and does not expand the scope of the law.

For the overwhelming majority of individuals travelling abroad, the implications are straightforward. There is no requirement to apply in Form No. 157 or to obtain Form No. 159. The apprehension that every traveller is required to obtain an ITCC is therefore not supported by the statutory framework.

Tax clearance certificate (ITCC) remains a targeted safeguard to protect revenue in specific cases—not a blanket obligation. In a landscape where procedural changes are often mistaken for policy shifts, the position remains unambiguous.

The author, O.P. Yadav, is a former IRS officer with over 36 years of experience in tax administration, education, and training. He is presently working with Prosperr.io as a Tax Evangelist. The views expressed are personal.