Tax clearance certificate

A tax clearance certificate is a formal confirmation from the tax department stating that a taxpayer has settled all due taxes or currently has no pending tax obligations. Organisations may request this document when evaluating a person or business for activities that require proof of financial compliance — such as awarding contracts, issuing licences, or processing loans. It acts as an assurance that the applicant is up to date with tax regulations.

Example: If a construction firm wants to participate in a state tender, the tendering authority might require a tax clearance certificate to verify that the firm has cleared all its income-tax and GST responsibilities and has no unresolved tax issues.