The enactment of the new Income-tax Act, 2025 on April 1, 2026, has led to various revisions, sparking uncertainties among taxpayers regarding compliance obligations.
A significant point of contention revolves around whether individuals embarking on international trips now necessitate tax clearance or the completion of specific forms before each journey. The crux of the confusion lies in Section 420 of the recent legislation, alongside Form 156 and Form 157.
Upon scrutinizing the updated statutes, many have misconstrued that all outbound travelers from India must fulfill additional tax formalities pre-departure. The reference to forms and reporting obligations has exacerbated the notion that this is now mandatory for all voyagers. Nevertheless, this interpretation is not entirely accurate.
Section 420 of the Income-tax Act, 2025 addresses tax clearance prerequisites for select individuals departing India. Although this provision is part of the new law, it is not meant to be universally applicable. The regulation is tailored for specific scenarios, such as cases involving outstanding tax dues, ongoing proceedings, or situations where the tax authorities necessitate enhanced monitoring of a taxpayer before their departure. Essentially, it is a targeted provision and not a blanket requirement.
Form 156 and Form 157 serve as compliance documents associated with Section 420. Form 156 pertains to individuals possessing a Permanent Account Number who must submit an assurance regarding their tax status before traveling. On the other hand, Form 157 is designated for individuals without a PAN, including specific students or those lacking taxable income. These forms are triggered by events, signifying that they should be lodged at the time of departure only if the individual falls within the specified category.
Experts assert that the misconception that all travelers must adhere to these requisites is unfounded. Abhishek Kumar, Sebi RIA, stated, “I don’t think so. It’s not accurate that every individual traveling abroad after April 1, 2026, must lodge Form 156/157 on every occasion.” This underscores the prevailing understanding that the provision is applicable only under specific circumstances. For the majority of individuals journeying overseas for leisure, business, or education, there is no mandate to secure tax clearance or file these forms before each trip. As long as tax filings are current and there are no outstanding issues with the tax authorities, these provisions are unlikely to be enforced.
While the Income-tax Act, 2025 has introduced updated compliance guidelines, it has not made tax clearance obligatory for every foreign journey. The confusion emanates from an expansive interpretation of Section 420 and associated forms; however, in practice, the requirement is confined to particular instances. The average taxpayer faces no additional compliance burden when traveling abroad.