The Government of India continues to crackdown on self-certifications and know your customer (KYC) compliance…
Make Sure You have Filed FATCA Compliance Certifications
Many Indian banks and financial institutions have in recent years been requesting customers to complete a “FATCA Compliance Certificate”. The reason for the request is that India and the US signed an agreement to implement the Foreign Account Tax Compliance Act (FATCA), which allows automatic exchange of tax information between the two countries. Under the FATCA pact, financial institutions in India would be required to report information about US account holders/taxpayers directly to the Indian government, which would be then passed on to the US Internal Revenue Service (IRS). FATCA is an important part of the US government’s effort to address tax evasion.
Last year markets regulator Sebi required that Indian financial institutions have to file certification of their FATCA compliance with Sebi on an annual basis as well as put in place a system to validate information collected.
Account holders must provide a self-certification of compliance under FATCA. Failure to provide self-certification of compliance could result in the noncompliant accounts being blocked and inaccessible for any transactions.
In 2015 India had signed the Inter-Governmental Agreement (IGA) with the US for implementing the Foreign Account Tax Compliance Act (FATCA). FATCA is part of the U.S.’s answer to tracking money hidden in offshore accounts so it can be brought into the US tax net. Over 100 countries have signed on to FATCA and automatically report foreign account and income data to the US IRS. As a result, foreign banking secrecy no longer exists: virtually all foreign banks report bank data to the IRS.
Indian investors (including NRIs), who hold accounts in any Indian financial institutions such as mutual funds or fixed deposits, must to file a FATCA self-certification form. All joint investment account holders, including any power of attorney holders and guardians of minors also need to attach their FATCA/CRS certifications.
The account holders need to provide details such as tax residency status in India, passport status, immigration status, and documents supporting it, such as documents stating your place of birth, occupation, income details, and tax identification number.
Account holders should be certain they are in full compliance with all US tax and reporting requirements to avoid future tax and legal problems. For example, US tax law requires annual information reporting on all Indian accounts over US$10,000 in aggregate. The IRS has established several amnesty programs, under which a non-compliant individual can become compliant and avoid potentially high penalties or criminal prosecution. However these amnesty programs generally require the taxpayer to come forth before being contacted by the IRS.
Accountholders should seek competent US tax legal advice before completing any self-certifications or know your customer (KYC) documents for noncompliant accounts.
Parag Patel is a US-based tax attorney with Patel Law Offices in New Jersey, USA.