The Income-Tax Department has asked financial institutions to obtain self-certification for all accounts opened between July 1, 2014, and August 31, 2015. This initiative aims 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.
Under self-certification, an investor has to provide declaration relating to the US Foreign Account Tax Compliance Act (FATCA)/Common Reporting Standard (CRS). It does not require one to submit the Aadhaar card in order to comply with FATCA requirements.
Meenakshi J. Goswami, Commissioner of Income Tax (media and technical policy) and Central Board of Direct Taxes' official spokesperson, says, "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."
Rajiv Shastri, Managing Director and Chief Executive Officer, Peerless Mutual Fund, says, "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."
According to the notification, account holders need to submit the self-certification document by April 30. If they 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 inter-governmental agreement with the US for implementation of FATCA came into force on 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 initial deadline was August 31, 2016, for meeting the FATCA requirements; otherwise they were required to close the accounts. 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.