US-India Cooperation: In 2015, India and the US signed an agreement to implement the Foreign…
New FATCA / CRS reporting penalties in India
The new 2023 Tax Budget in India has many new proposals. However, the most important proposal for investors, especially non-resident Indians, is a new penalty for providing inaccurate information for KYC (Know Your Customer) including information provided in FATCA and CRS questionnaire.
The new budget proposes a penalty of Rs.5,000 if there is any inaccuracy in the statement of financial transactions submitted by a prescribed reporting financial institution and such inaccuracy is due to false or inaccurate information submitted by the customer. The financial institution shall be entitled to recover the penalty from the customer.
Since 2014, the Indian Income Tax Act has made it mandatory for any financial institution to submit a statement for any specified financial transaction or a reportable account and introduced penalty of Rs. 50,000 for inaccurate submissions.
As a result, a long FATCA/CRS declaration was made part of the updated KYC (Know Your Customer) procedures for collecting required information for almost all institutions. The information was collected on self-certification basis but no penalty was specified for submitting a false self-certification by account holders which led to furnishing of an incorrect statement by financial institutions.
Since then many customers have provided false information on the FATCA/CRS declaration and KYC forms. Most notably, many non-resident customers falsely claimed to be resident Indians and provided local Indian information in order to a local account (otherwise NRIs must open a NR account).
To make the account holder responsible for his self certification, this budget introduced additional penalty of Rs. 5,000 for any inaccuracy due to false or inaccurate information submitted by the account holder. While the penalty is on the financial institutions, they are also allowed to recover the amount from the account holder.
If a customer fails to provide or provides inaccurate (or outdated) information regarding their citizenship, residential status, country of tax residency on KYC, FATCA/CRS form, they will get penalized. The penalty also applies to every joint holder. Also, as the reporting by financial institutions is made annually, the penalty of Rs. 5000 will also be levied every year.
The penalty can be very large for someone who has 5 bank accounts, 10 mutual funds, 3 brokerages, and 2 insurance policies. The penalty would be Rs. 100,000 (20 x 5000) annually; and if the account is joint, the same penalty would also apply to all joint account holders.
Indian account holders beware: We expect new aggressive enforcement from all Indian financial institutions in terms of verification of KYC/FATCA information. The penalty could be very high for someone having multiple joint holders, multiple accounts, multiple investments.
Patel Law Offices offers a free strategy session to discuss how to resolve your legal problem. Conveniently schedule online today with our online scheduler and questionnaire.