Any NRI living in the United States, who invests in Indian assets, must follow the Foreign Account Tax Compliance Act (FATCA) regulations. These laws oblige financial firms to provide information on accounts owned by US taxpayers. FATCA also compels NRIs living in the United States to self-declare while making investments in India. Find out whether assets in India require FATCA compliance if you are an NRI living in the United States. For their offshore accounts, all NRIs must follow worldwide tax compliance protocols. The Foreign Account Tax Compliance Act, or FATCA, outlines one of the most essential set of laws for NRIs living in the United States.
What Is Fatca?
FATCA, or the Foreign Account Tax Compliance Act, is a tax law that was approved by the United States government in 2010 as part of the Hiring Incentive to Restore Employment (HIRE) Act. The Act compels certain foreign financial institutions to disclose to the Internal Revenue Service information on financial accounts maintained by US taxpayers (IRS). These entities must also report cases of tax avoidance. If an individual fails to meet any of the document criteria, a financial institution has the authority to withhold tax. In summary, FATCA attempts to increase transparency and reduce tax fraud by tracking the income received by NRIs living in the United States from non-US assets and investments
India And Fatca
The Indian government agreed to implement the FATCA in 2015 by way of inter-government agreement between India and USA. As per the inter-government agreement, Indian tax officials need to obtain specific information from US investors. To achieve this, the Indian government made it mandatory for all NRI investors from the US to self-declare FATCA compliance through Form 61B, as per Rules 114F and 114H of the Income Tax Rules, 1962. In addition, the government of India also asks for tax residency numbers and Indian passports.
The Inter-Governmental Agreement (IGA) with the United States for FATCA implementation went into effect on August 31, 2015. It will come under the ambit ofalternative procedure which is being provided under theRule 114H (8) of the Income Tax Rules, 1962, Theinstitutions who manages the financial investmentsmust conduct due diligence and also obtain the self-certification in order fordeterminingthe reasonableness of the self-certification in respect of all entity and individualaccounts which is being openedbetween July 1st, 2014 and August 31st, 2015. The institutions who manage the financial investmentsmust get such self-certification and evidence by August 31, 2016, or else they must terminate the account and disclose it if it is determined to be a “reportable account.”
Facta Applies To
FATCA states that everyone living in the United States is subject to this tax regulation. These are some examples:
- Permanent residents of the United States or holders of green cards
- US citizens or NRIs who have relocated to the US and are now naturalised citizens of the country
- Non-Resident Indians (NRIs) and Persons of Indian Origin (PIO) working in the United States on a B1/B2, H1-B, E-2, or L1/L2 visa.
Let’s look at a detailed list of investments and assets to see if they fall under FATCA’s purview:
Investments and FATCA application
Fixed deposits, public provident funds, equities, mutual funds, bank interest, other capital gains, and retirement contributions are all examples of Indian assets that are subject to reporting and taxation in the United States
House property owned by NRIs
TheHouse properties which are beingheld by NRIs in India do not comes under the ambit ofFATCA’s defined assets. This implies that any money made from them is exempt from FATCA. This revenue, however, is subject to taxation in India.
Bank accounts
NRE, NRO and FCNR accounts held by NRIs come under the purview of FATCA.
Not covered by FATCA
Jewellery, antiques, art pieces,automobiles, and other collectibles itemsare examples of assets which does not comes underthe rule ofFATCA scrutiny. It is not necessary to report safety deposit boxes. Foreign cash owned by you but not in any financial institution is likewise exempt from FATCA reporting.
Difference Between Fatca And Crs
The Organization for Economic Cooperation and Development (OECD) created the CRS or Common Standard on Reporting and Due Diligence for Financial Account Information, in response to the success of FATCA. The CRS is founded on the same rules as FATCA, although there are significant variations between the two. While both laws were designed to fight tax evasion, CRS is more comprehensive in its design. Except for the United States, it covers 90 countries. The CRS requires the reporting of all financial accounts, but FATCA does not. FATCA only applies to Americans and includes a cap that exempts US taxpayers with a total worth of overseas financial holdings of less than $50,000. CRS does not have any such exemptions.
Non-compliance Repercussions
Noncompliance with FATCA regulations in India can result in the suspension of bank accounts, the restriction of investments in mutual funds, and the freezing of NPS or PPF accounts.
FATCA is basically a concerted effort in the United States to combat tax evasion. NRIs can make money from overseas assets, but they must report them. So, if you are an NRI in the United States, always remember to follow FATCA regulations before investing in assets in India.
