India and US signed the Foreign Account Tax Compliance Act (FATCA) to check offshore tax evasion.
This will facilitate exchange of information between the two countries from October 1.
The FATCA was signed by Revenue Secretary Shaktikanta Das and US Ambassador Richard Verma in New Delhi.
Features of FACTA
- Indian financial institutions would have to reveal information about US tax payers to the revenue department which would be passed on to the US tax authorities.
- US will also share financial information with India.
- If a financial institution does not comply to FATCA, it will have to pay 30% penalty tax on all its US revenues, including dividend, interest, fees and sales.
- FATCA will help India deal with the black money menace.
- India will start receiving information from other countries under automatic exchange of information (AEOI) route from 2017 onwards.
- This initiative will mark a significant improvement in mutual cooperation to combat offshore tax evasion and will benefit both the countries.
What is FATCA?
- FATCA is an acronym for the United States Foreign Account Tax Compliance Act (FATCA).
- FATCA is aimed at ensuring that US persons with financial assets outside of the US are pay US tax.
- Under FATCA, Foreign Financial Institutions (FFIs) have to report accounts of US persons to the US Inland Revenue Service (IRS) either directly or indirectly. They have the option of entering into agreements directly with IRS, or through the Inter-Governmental Agreements (IGA’s) signed by their home countries.
- In order to implement FATCA norms in India, the Government of India has reached an “in substance” Agreement to sign an Inter-Governmental Agreement (IGA) with the U.S.A.
What is the impact of FATCA in India?
- The Government of India has concluded an ‘In Substance’ agreement with the Government of USA for entering into an Inter-Governmental Agreement (IGA) for implementation of FATCA.
- In view of this all banks and other financial institutions in India will be required to identify, establish and report information on financial accounts held directly or indirectly by US persons.