FATCA Obligations

FATCA Obligations

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The Foreign Tax Account Compliance Act (FATCA) is a United States legislation that was enacted in 2010 to combat tax evasion by U.S. citizens and entities holding financial assets abroad. FATCA requires foreign financial institutions (FFIs) to report information about U.S. account holders to the U.S. Internal Revenue Service (IRS). Indian tax entities have signed multiple agreements with foreign jurisdictions to exchange financial information and enhance transparency. This collaborative approach has helped streamline the reporting process and strengthen the effectiveness of FATCA compliance.

The applicability of FATCA is global and India is no exception. The Indian government recognized the importance of combating tax evasion and entered into an intergovernmental agreement (IGA) with the United States in 2015. Under the IGA, Indian financial institutions are required to comply with FATCA provisions.

For complying with this act, FATCA obligations include registration, due diligence, reporting, and withholding. Indian financial institutions that fall under the definition of FFIs are required to register with the IRS to obtain a Global Intermediary Identification Number (GIIN). The GIIN works as a unique identifier for the institution in FATCA reporting. Indian FFIs must conduct due diligence on their account holders to identify U.S. persons. This involves establishing procedures to identify indicia of U.S. citizenship or residency, such as U.S. passports, U.S. addresses, or U.S. telephone numbers. Indian financial institutions must report certain information about U.S. account holders to the Indian tax authorities. This includes the account holder's name, address, tax identification number, and financial account balance. Non-compliant financial institutions face potential penalties, including a 30% withholding tax on certain U.S. source income. To avoid this, Indian FFIs must withhold tax on payments made to non-compliant account holders or institutions that have not provided the required information.

Indian financial institutions have made significant efforts to ensure FATCA compliance. The Indian government has taken steps to provide guidance and support to financial institutions in meeting their FATCA compliance India obligations. The Reserve Bank of India (RBI), the country's central bank, has issued guidelines to Indian banks, non-banking financial companies, and other financial intermediaries to ensure compliance with FATCA provisions. These guidelines include establishing compliance units, conducting regular audits, and submitting annual reports to the RBI. The Central Board of Direct Taxes (CBDT) has also been actively involved in facilitating FATCA compliance in India.