What is FATCA?
FATCA is an act that focuses on instances of deliberate tax evasion by US citizens/residents on income generated at overseas locations. The Foreign Account Tax Compliance Act (FATCA) is legislation put in place by the United States government. Its purpose is to ensure that foreign financial institutions provide the US government with the information about clients who could be subject to American tax laws.
How it affect Indian institutions?
Indian institutions, too, will have to sign up with the Internal Revenue Service (IRS) for this purpose. They have to obtain a Global Intermediary Identification Number (GIIN), according to a regulatory circular. They will have to report the assets of such clients to the IRS.
Effect of not signing up?
Financial institutions which do not sign up with Internal Revenue Service will face a 30% withholding tax on all payments from the US. This means that every time a non-compliant bank, brokerage or mutual fund get Rs.100 from the US; Rs.30 will be deducted by the US tax authorities.
Indian Government’s stand on this issue
The Indian Government signed an Inter-Governmental Agreement (IGA) with the United States (US) on 9 July 2015 to implement the Foreign Account Tax Compliance Act (FATCA) in India. According to the IGA read with the FATCA provisions, foreign financial institutions (FFIs) in India are required to report tax information about US account holders to the Indian Government which will, in turn, relay that information to the US Internal Revenue Service (IRS). Furthermore, the US IRS will provide similar information about Indian citizens having any accounts or assets in the US. This automatic exchange of information is scheduled to begin on 30 September 2015. Following the signing of the IGA, on 7 August 2015, the Indian Government enacted rules relating to FATCA reporting in India.
Who is US Person under FATCA?
For identifying foreign bank/investment accounts, you are considered a US person, if one or more of these criteria apply to you:
- Citizen (living or working outside US).
- Green Card Holder.
- Tax Resident (from other countries)
- Dual-citizenship owner.
- Children of US citizen/s.
- Place of Birth.
- Residence Address.
- US person as investor or controlling owner of entity (estates, trusts, corporations and partnerships).
Foreign Account Tax is meant only for US persons with threshold-limited accounts in India. Assets include investments and partitioned/inherited family assets in India –
- Individuals with bank or investment account balance above $50000.
- US person living in India with bank or investment account balance above $200000.
- Entities with bank or investment account balance above $250000.
- Immovable properties like land or house property, and personal assets like jewellery are not covered by FATCA
- Investment in partnership or proprietorship firm not included and not reported.
You may refer to IRS website at following address for further details:
https://www.irs.gov/businesses/corporations/fatca-regulations-and-other-guidance