The Foreign Account Tax Compliance Act (FATCA) is legislation put in place by the United States Government. The purpose of the legislation is to ensure that foreign financial institutions provide the US government with information about clients who could be subject to American Tax laws. FATCA helps the US Government track the details of transactions and investments of US citizens residing in a foreign country. The primary intention of this legislature is to facilitate the exchange of information between two countries, which means that if a U.S. citizen holds an account in a foreign country, the details of his/her income or bank account will automatically become declared information through this Act. Thus, all the Foreign Financial Institutions (FFIs) located abroad will pass the particular declared information of every US citizen’s account details to the Internal Revenue Service(IRS) of the US under FATCA regulation.
Impact of FATCA
- The FATCA is an agreement which is signed between the US Government and the Indian Government to report assets and income held by citizens of the US in offshore accounts. FATCA was signed between India and the US works to find the deliberate income tax evasions carried out by US citizens or residents in offshore accounts which is illegal, as against tax avoidance which is legal in the US.
- The agreement between India and USA was signed between the two countries on July 9, 2015, and the initial deadline for all the aforementioned account holders to get the compliance done was August 2016, which was later extended to April 30, 2017, to give people more time to adapt.
- Indian institutions geared up and started working on different methods to ensure compliance with FATCA. Finally, the Indian Government may have to sign up with the Internal Revenue Service (IRS) for this purpose. The Government of India obtained a Global Intermediary Identification Number (GIIN), according to a regulatory circular. Therefore, the Government shall report the assets of such clients to the IRS.
- According to the new norm being imposed by the Indian banking system from May 1, 2017, all bank account holders, mutual funds, and insurance scheme investors are expected to compulsorily get their Foreign Account Tax Compliance Act (FATCA) compliance done or else their accounts would be frozen.
What happens if a person does not comply with FATCA?
If one fails to get FATCA compliance done by April 30, 2017 (Sunday), any of the bank, mutual funds, or insurance investment accounts opened between the aforementioned dates will be frozen, which means the taxpayer will not be allowed to carry out any transactions from those accounts even if there is money in it. As for mutual fund account holders, the investors will not be able to access the amount already invested in funds or carry out any new investments.
How to file FATCA details?
- FATCA details can be filed using a self-certification form that is available with the mutual fund company’s website, can also be done at all service centres / Asset Management Companies (AMCs).
- One can use either offline or online mode to submit their FATCA form details.
- For physical submission, one needs to duly sign the FATCA form along with copies of necessary and relevant documents and submit the same at the nearest AMC branch.
- Alternatively, one can approach their Registrar and Transfer Agent (R&T) for online submission, where PAN card is used to generate a one-time password sent on to a person’s registered mobile or email.
What information is required for FATCA filing?
To file a FATCA form, the following information and documents would be required:
- Name & Demographic Information
- Place of Birth
- Income Details
- Net worth Details
- Tax Identification Number(s)
- Passport Details
- Elections / Voters ID
- Aadhaar Card
- Any other government-issued ID card.
- If taxpayer-identification document is not available, an explanation for the default needs to be enclosed.
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