The requirement applies only under specific circumstances. According to the CBDT’s Instruction No. 1/2004, dated February 5, 2004, a tax clearance certificate is necessary only for individuals involved in serious financial irregularities or those with significant direct tax arrears exceeding Rs. 10 lakh, provided these arrears have not been stayed by any authority.
In such cases, the individual’s presence is deemed crucial for investigations under the Income-tax Act or the Wealth-tax Act, and a tax demand is anticipated.