FinMin clarifies tax reporting norms under FATCA and CRS
February, 20th 2016
The Finance Ministry has clarified on implementation of Foreign Account Tax Compliance Act (FATCA) and Common Reporting Standards and said that all fixed deposits as well as auto sweep facilities in pre-existing savings bank accounts will not require due diligence.
“During stakeholders’ consultations, representatives of financial institutions informed that in such cases, no additional documentation are obtained for these fixed deposits accounts as they are intrinsically related to existing savings bank account and all KYC documents are available for the existing saving bank account,” the Central Board of Direct Taxes said on Friday.
Accordingly fixed deposits in savings accounts opened before June 30, 2014 and December 31, 2015 will not have to be certified for FATCA and CRS, respectively.
Curbing tax evasion
India signed the FATCA in July last year. FATCA aims to counter tax evasion by US taxpayers who use of offshore accounts to park money otherwise taxable in the US.
Similarly, the CRS was released by OECD and G-20 Countries as a standard basis for automatic tax information exchange between member countries through respective bilateral tax treaties.
The CBDT has clarified that the local custodian will have to do due diligence held by global custodians’ end clients. But they can use the KYC, FATCA and CRS documentation done by the global custodian for the account holders including the self-certification.
The guidelines also said the upcoming reporting in March 2015 and May 2016 has to be done in the Indian currency. From 2017, the reporting forms will be modified to include a field for capturing type of currency.
The CBDT further said a Hindu Undivided Family (HUF) account shall be treated as an entity account and its due diligence will be the same as that for Prevention of Money Laundering Act and Know Your Customer (KYC) norms.
In response to queries on reporting by NBFCs, the Board said that those which accept deposits as part of their banking business will be considered as Depository Institution and will report accordingly. “An NBFC which is working as investment entity, will report,” it said.
The Finance Ministry is also revising the procedure for registration and submission of reports under the FATCA and CRS.
The CBDT had originally issued a guidance not on reporting norms in August last year, which it updated in December but has now come out with clarifications after several queries were raised.
Tax experts welcomed the clarification but said clarity is also required on principles for other financial institutions like mutual funds and depository participants.
“This reflects the CBDT’s intent of smoothing the implementation of FATCA and CRS and harmonising the requirements under the income-tax Act with that of the regulatory provisions. The clarifications issued are on some of the key issues in implementation but there are others which are still to be clarified,” said Bahroze Kamdin, Partner, Deloitte.