FATCA India Compliance Update

FATCA India Compliance Update

May 1, 2017 is the compliance deadline for all US persons with mutual funds, bank accounts, and insurance products in India to comply with FATCA by providing their financial institutions with their FATCA declaration form.

What is FATCA?

FATCA, short for Foreign Account Tax Compliance Act, enables an exchange of financial information between India and the United States. FATCA was enacted as part of an anti tax evasion regime to locate income and assets held by U.S. persons in overseas accounts.

India and the U.S. signed a Model 1 Intergovernmental Agreement (IGA) which provides for a reciprocal information exchange between the two countries. The IGA came into effect on August 31, 2015 and requires financial institutions to obtain a FATCA declaration form for all individual and entity accounts opened between July 1, 2014 through August 31, 2015.

What is FATCA Declaration Form?

If you have a financial account in India and the bank has reason to believe you are a U.S. person or have a U.S. nexus, the bank is required to send you a FATCA declaration form. The FATCA declaration form will ask you to provide information such as:

  • Names on the account
  • Passport number
  • Country of residence for tax purposes
  • U.S. Taxpayer Identification Number (Social Security Number or ITIN)
  • Current Address

What Happens if You do Not Comply?

If your accounts were opened between July 1, 2014 and August 31, 2015, and you fail to self-certify by May 1, 2017, your account will be blocked or frozen, meaning that no transactions will be allowed on those accounts. All accounts opened after August 31, 2015 were required to self-certify by filling out a FATCA declaration form before opening the account, so these accounts are not affected by the May 1 deadline.

What Happens to Information Provided on the FATCA Declaration Form?

India’s Central Board of Direct Taxes (CBDT) provides rules and procedures for the maintaining and reporting of information regarding non-resident Indian (NRI) accounts.

After the financial institutions have completed their due diligence in identifying account holders that fall within the FATCA self-certification requirement, the financial institutions will report all such accounts that have values exceeding $50,000. The following information will be provided regarding each responsive account:

  • Name and address
  • Taxpayer ID for country of residence
  • Date and place of birth
  • Account number
  • Account balance at the end of the year or before closure
  • Gross income (interest, dividend, capital gain) in custodial accounts
  • Gross interest from deposit accounts
  • Any payments made to non-participating financial institutions

The financial institution will report this information to CBDT, which will in turn provide the information to the U.S. taxing authority.

What should non-compliant taxpayers do?

If taxpayers are non-compliant with the foreign asset and income reporting requirements, they should consider applying to one of IRS’ voluntary disclosure programs:

Why hire us?

We assist taxpayers who have undisclosed foreign financial assets. Schedule an appointment to see how we can help.