India’s Signatory to FATCA: Key Highlights

India’s Signatory to FATCA: Key Highlights

Question: India has recently become a signatory to FATCA. Discuss the key highlights of India’s acceptance of the Foreign Account Tax Compliance Act.

- Foreign Account Tax Compliance Act is a US Federal law enacted in 2010 to get information on accounts held in other countries by US taxpayers

- Law requires US financial institutions to withhold a portion pf payments made to FFIs which do not identify and report information on US account holders

- The Intern Governmental Agreement to implement FATCA was signed by the Revenue Secretary(India) and US Ambassador to India

- Agreement highlights the importance of global cooperation to prevent tax evasion everywhere

- India and the US have longstanding bilateral ties; friendship extends to mutual help in tax matters

- It is a re-affirmation of the shared commitment of India and USA towards tax transparency

- There has also been a fight against offshore tax evasion and avoidance

- This is a move by GoI to fight against the menace of black money and ensure tax transparency through higher equity in to the direct tax regime critical for a healthy economy

- FATCA is an important step in combating tax evasion

- US has IGAs with more than 110 jurisdictions and is engaged in related discussions with many other jurisdictions

- As per the IGA, Indian FFIs will be required to report tax information about US account holders directly to the Indian government which will relay the information to the Indian Revenue Service

- IRS will provide similar data about Indian account holders in the US and this automatic information exchange will commence from September 30, 2015

Key Terms and Conditions of FATCA

- It would be incumbent on nations to provide key safeguards to ensure information received pursuant to the Agreement will not be disclosed except for tax matters

- Further,agreement specified that Indian financial institutions are not needed to mandatorily report holdings of American nations if amount is less than USD 50,000 on June 30

- The same ceiling will also apply for the depository account

- The institutions will also be given exemption from reporting cash value of insurance contract or annuity contract is less than USD 250,000 on June 30

- Agreement also stipulated that the reporting procedures and details to be furnished under the deal need to include names, addresses, account numbers and balance as well as Taxpayer Identification Number

- India and US agreed to review progress and suggest amendments by December 2016

Facts and Stats

- Signing of IGA as well as Indian decision to join the Multilateral Competent Authority Agreement are important milestones in India’s fight to combat the black money menace

- It will enable Indian tax authorities to receive financial aid from foreign countries on an automatic basis

- Information under FATCA will remain confidential and it will be used for tax purposes