With the new Income-tax Act, 2025 coming into effect from April 1, 2026, leading to confusion among taxpayers about compliance requirements.
One such area of uncertainty is whether individuals travelling abroad now need to obtain tax clearance or file specific forms before every trip.
The confusion centres around Section 420 of the new law, along with Form 156 and Form 157.
A reading of the updated provisions has led many to believe that anyone travelling outside India must complete additional tax formalities before departure.
The mention of forms and reporting requirements has added to the perception that this is now a mandatory step for all travellers.
However, this interpretation is not entirely correct.
Section 420 of the Income-tax Act, 2025 deals with tax clearance requirements for certain individuals leaving India. While the provision exists in the new law, it is not intended to apply universally.
The rule is designed for specific situations, such as cases involving pending tax liabilities, ongoing proceedings, or instances where the tax department requires closer monitoring of a taxpayer before they leave the country.
In essence, it is a targeted provision, not a blanket requirement.
Form 156 and Form 157 are compliance forms linked to Section 420.
Form 156 applies to individuals who have a Permanent Account Number and are required to submit an undertaking regarding their tax position before travelling.
Form 157 is meant for those who do not have a PAN, including certain students or individuals without taxable income.
These forms are event-based, meaning they are to be filed at the time of departure, but only if the individual falls under the specified category.
Experts say the interpretation that every traveller must comply with these requirements is incorrect.
Abhishek Kumar, Sebi RIA, said, “I don’t think so. It’s not true that every person travelling abroad after 1 April 2026 must file Form 156/157 every single time.”
This reflects the broader understanding that the provision applies only in limited cases.
For most people travelling abroad for holidays, work or education, there is no requirement to obtain tax clearance or file these forms before every trip.
As long as tax filings are up to date and there are no unresolved issues with the tax department, these provisions are unlikely to apply.
While the Income-tax Act, 2025 has introduced updated compliance rules, it has not made tax clearance mandatory for every foreign trip.
The confusion arises from a broad reading of Section 420 and related forms, but in practice, the requirement is limited to specific cases.
For the average taxpayer, there is no additional compliance burden when travelling abroad.
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