What is FATCA?

FATCA
FATCA

Foreign Account Tax Compliance Act

 

India has signed the Inter-Governmental Agreement (IGA) with the USA on July 9, 2015, for Improving International Tax Compliance and implementing the Foreign Account Tax Compliance Act (FATCA).

India has also signed a multilateral agreement on June 3, 2015, to automatically exchange information based on Article 6 of the Convention on Mutual Administrative Assistance in Tax Matters under the Common Reporting Standard(CRS) , formally referred to as the Standard for Automatic Exchange of Financial Account Information (AEoI).

Accordingly, all the concerned Financial Institutions should register on the related e-filling portal of Income Tax Department as Reporting Financial Institution by submitting the requisite details.

  • FATCA targets tax non-compliance by U.S. taxpayers with foreign accounts (NRE/NRO accounts for the sake of this article)
  • It focuses on reporting:
    • By U.S. taxpayers about certain foreign financial accounts and offshore assets.
    • By foreign financial institutions about financial accounts held by U.S. taxpayers or foreign entities in which U.S. taxpayers hold a substantial ownership interest.
    • The objective of FATCA is the reporting of foreign financial assets.

 

    • Use Form 8938 to report these assets
      • Attach Form 8938 to the annual income tax return (usually Form 1040)
        • Taxpayers with a total value of specified foreign financial assets below a certain threshold do not have to file Form 8938
        • If the total value is at or below $50,000 at the end of the tax year, there is no reporting requirement for the year, unless the total value was more than $75,000 at any time during the tax year
        • The threshold is higher for individuals who live outside the United States.
        • Thresholds are different for married and single taxpayers.
        • Penalties apply for failure to file accurately.

Further reading:

https://www.irs.gov/businesses/corporations/do-i-need-to-file-form-8938-statement-of-specified-foreign-financial-assets

https://www.irs.gov/businesses/corporations/fatcafaqs

https://www.rbi.org.in/scripts/NotificationUser.aspx?Id=10005&Mode=0

Most of the banks in India have made it mandatory to update extended KYC/ FATCA of NRIs/PIOs holding non-resident accounts in India.

Hope this post helps.

Cheers!

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