India and the US on Thursday signed an inter-governmental agreement to implement the Foreign Account Tax Compliance Act (FATCA) towards greater transparency between the two countries on tax matters.
The agreement was signed here by Revenue Secretary Shaktikanta Das and US ambassador to India Richard Verma.
"It reaffirms the government of India's commitment to fight the menace of black money. It is hoped that the exchange of information on automatic basis regarding offshore accounts under FATCA would deter tax offenders, would enhance tax transparency and eventually bring in higher equity into the direct tax regime," Das said on the occasion.
The US ambassador said: "The signing of tax agreement is an important step forward in the collaboration between the US and India to combat tax evasion. FATCA is an important part of the US government's effort to address this issue."
As per this inter-governmental agreement under a new US law, 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.
In turn, the US will also share financial information with India.
FATCA requires all financial institutions outside of the US to periodically transmit information on financial accounts held by Americans to the US Internal Revenue Service, or face a 30 percent withholding tax on payments made from the US.
It is intended to ensure that the US obtains information on accounts held abroad at foreign financial institutions (FFIs) by Americans.
"The signing of the inter-governmental agreement on FATCA is a landmark event in furthering the Indo-US relationship," said international accounting firm KPMG in India Partner Himanish Chaudhuri.
"It is imperative that the industry stakeholders ready themselves for implementing the required infrastructure and processes, which is required to meet the exacting requirements of these regulations," he added.
In this regard, Joint Secretary (Finance) Akhilesh Ranjan said last week here the government was committed to the confidentiality of data and is taking several measures to ensure it.
"A security committee has been set up within CBDT (Central Board of Direct Taxes) headed by the chief information security officer for security of documents and information," he said.
"FATCA compliance will necessarily have to cover all new accounts opened by Indian financial institutions (FIs) from July 1, 2014 onwards," industry chamber FICCI said in a statement here last week.
"Further, FIs would be obliged to share data with the government in respect of all new accounts opened from July 1 till December 31, 2014, to enable the government to share this data with the US by September 30, 2015," it added.
Last November in Australia, India and the other G20 countries agreed to automatically exchanging tax information on a reciprocal basis by the end of 2018.