Come 1st May the Indian government has brought in some new rules and regulations into place to make the entire economic system more clear. FATCA or Foreign Account Tax Compliance Act are being introduced in the Indian banking system, and your bank account may freeze if it is not FATCA compliant. Bank account holders, mutual fund investors as well as people who have invested in insurance schemes have to make their bank accounts compliant with FATCA, or their accounts will freeze on 1st May 2017. According to government and the Income tax authorities, this rule is applicable if you have opened your account between 1st July 2014 and 31st August 2015.
The eligible people need to file their FATCA in order to avoid the hassle of getting the bank accounts frozen! FATCA is a tax information sharing law that has been introduced by the Ministry of Finance to the mutual funds, banks as well as insurance firms. These firms have been instructed to block all the non-compliant accounts in accordance with the anti-tax-evasion agreement between US and India. According to the norms, people who fail to do it can access or operate accounts only after account holders provide the necessary details. However, there is still a lot of confusion about FATCA and its rules. Here is everything you need to know about the Foreign Account Tax Compliance Act.
1. What is FATCA?
FATCA or Foreign Account Tax Compliance Act is a part of an agreement between US and India which is designed to locate income and assets held by people of the US in offshore accounts. The FATCA agreement leads to an automatic sharing of information between the two nations about the various investors. This rule had been introduced long back. However, the deadline for FATCA was extended from August 2016 to 30th April 2017. As per this deadline, the Ministry of Finance has instructed firms to block all the non-compliant accounts starting 1st May 2017.
2. How to file FATCA?
FATCA is basically a sort of income declaration by people who invest in Mutual Funds, insurance and other schemes. The account holders are required to provide a self-declaration about the tax residency to their financial institution. Once this declaration is received, the account will automatically be recognised as FATCA approved. The details for FATCA can be filled offline or online. These forms are available at the mutual fund companies as well as the service centres.
3. How will non-compilation of FATCA affect me
People who do not compile with this deadline will have their accounts blocked. Depending on the account that you have, the effects of non-compliance will vary. The bank accounts and non-pension system accounts will be frozen, so no transactions can be made in spite of having money in the bank and may affect your monthly bill payments. In the case of mutual fund investors, they will not be able to access the amount invested in mutual funds or carry out any transaction if they fail to file FATCA.
4. What to file in FATCA
FATCA compliance is a simple declaration that requires basic information like PAN card details, Nationality, Occupation, gross annual income, country of birth, country of residence and the details of any political connections. In addition to this, you need to provide your tax identification number if you have been paying taxes. These details are required for both individuals as well as non-individual investors. The Ministry of Finance issues a statement saying that account holders who fail to provide this information in the form of the self declaration will be prohibited from making any transaction via these accounts.