The deadline for complying with Foreign Account Tax Compliance Act (FATCA) and Common Reporting Standards (CRS) requirements is approaching. You may have already received reminders from the bank or the mutual fund where you have invested that your account may be frozen, closed or reported to the government if you do not comply with the FATCA/CRS requirements by August 31.
Many bank account holders and investors would be wondering what FATCA/CRS is all about and whether it is mandatory to go through the compliance requirements. If you have got the reminder, we advise you to complying with the requriements. It is a simple process and would save you a lot of trouble.
Here we provide you a brief on basics of FATCA/CRS:
What is FATCA and CRS? These are laws under which financial institutions around the world are required to report account details of its account holders that are treated as ‘reportable’ under the regulations in order to promote transparency and exchange of information.
Who all need to comply? All financial institution in India, needs to comply with FATCA/CRS and the associated due diligence requirements. For example, mutual funds have to collect FATCA/CRS details mandatorily for all customers who have invested since July 1, 2014.
Why is the compliance required? India and the US signed an Inter-Governmental Agreement (IGA) on July 9, 2015, to implement the FATCA in India. India also became a signatory to the Multi-lateral Competent Authority Agreement (MCAA) on June 3, 2015. For implementation of MCAA and IGA with US, the Indian government has made necessary changes to Section 285BA of Income Tax Act, 1961. Further, the Central Board of Direct Taxes has notified Rules 114F to 114H under the Income Tax Rules, 1962.
What are the details sought? Rules 114F to 114H require domestic financial institutions to seek additional information on personal details, tax and beneficial owner and certain certifications and documentation from account holder or investors. The FATCA declaration will include basic know-your-customer details such as resident status, income details and political exposure. This requirement is applicable for joint holders as well.
What you need to do? All you need to do is to provide the institution with with a signed physical or scanned FATCA/CRS declaration sent to you by the financial institution with the details sought.
