Bank accounts that were opened between July 1, 2014 and August 31, 2015 and are yet to be FATCA (Foreign Account Tax Compliance Act) compliant will be blocked from today.
Earlier, the Income-Tax Department had asked financial institutions to obtain self-certification for all accounts opened between July 1, 2014, and August 31, 2015. This was done to comply with the Foreign Tax Compliance Act (FATCA), a deal that India has signed with the US for automatic exchange of financial information between the two nations about tax evaders.
"The account holders may be informed that, in case self-certifications are not provided till April 30, 2017, the accounts would be blocked, which would mean that the financial institution would prohibit the account holder from effecting any transaction with respect to such accounts," the Central Board of Direct Taxes or CBDT had said in a statement.
What is FATCA?
FATCA is an acronym for the United States Foreign Account Tax Compliance Act. FATCA is aimed at ensuring that US persons with financial assets outside of the US pay US tax. The new rules require foreign financial institutions (FFI's) to provide the (IRS) Internal Revenue Service with information on certain investments of US persons invested in accounts outside of the US and for certain non-US entities to provide information about any US owners.
FATCA allows automatic exchange of financial information between India and the US. India had entered into an agreement with the United States for implementation of the Foreign Accounts Tax Compliance Act (FATCA) with effect from August 31, 2015. Under the arrangement, the financial institutions need to obtain self-certifications and carry out due diligence in respect of all individual and entity accounts opened from July 1, 2014, to August 31, 2015.
The purpose of FATCA is to prevent US persons from using banks and other financial institutions outside and park their wealth outside their country to avoid US taxation on income generated from such wealth. FATCA obliges banks and financial institutions to report information about US persons having accounts with them.
Does Aadhar need to be linked?
In order to comply with FATCA requirements, one does not require to submit the Aadhaar card. Under self-certification, an investor has to provide declaration relating to the US Foreign Account Tax Compliance Act (FATCA)/Common Reporting Standard (CRS).
According to Meenakshi J Goswami, Commissioner of Income Tax (media and technical policy) and Central Board of Direct Taxes' official spokesperson, "Customers are not required to submit their Aadhaar cards to comply with FATCA. A bank may want KYC details only if it is found to be a reportable account."
"The circular issued by the Income-Tax Department has asked investors to comply with the FATCA guidelines, which involve obtaining self-certifications. KYC falls under the financial intelligence unit (FIU) and these are two different subjects," says Rajiv Shastri, Managing Director and Chief Executive Officer, Peerless Mutual Fund.
What happens if your account is not FATCA compliant?
If you fail to submit the details, the circular issued by the Income-Tax Department states that "The account holders may be informed that, in case self-certifications are not provided till April 30, 2017, the accounts would be blocked, which would mean that the financial institution would prohibit the account holder from effecting any transaction with respect to such accounts."
It, however, clarified that the transactions by the account holder in such blocked accounts may be permitted once the self-certification is obtained and due diligence completed. The initial deadline was August 31, 2016, for meeting the FATCA requirements. Later, the deadline was extended and the financial institutions were advised to continue to work on completing the required due diligence, including obtaining self-certifications.
Who is required to get FATCA compliance done?
All bank accounts, mutual funds accounts, or those who have invested in insurance schemes between July 1, 2014 and August 31, 2015 must be FATCA compliant by April 30th, 2017.
In case of non-compliance by this date these accounts will be blocked i.e. no financial transactions will be allowed in such non-compliant accounts after April 30, 2017. Financial transactions, such as purchase, redemption, will be allowed only after these accounts become FATCA compliant.
How to make your account FATCA compliant?
You will need to submit your PAN card details, occupation, country of birth, country of residence, gross annual income, and details of any political connections. You also need to provide your tax identification number if you have been paying taxes. The compliance needs to be done by individual and non-individual investors.