What is FATCA and CRS reporting?
The Foreign Account Tax Compliance Act (FATCA) was enacted by the U.S. government to prevent tax evasion by its citizens who make investments through non-U.S. financial institutions and off-shore investment instruments. By conducting due diligence on each client, FATCA ensures tax compliance and improves transparency.
The FATCA declaration is a compliance requirement that requires financial institutions to report relevant information to the U.S. Internal Revenue Services (IRS) on all accounts held directly or indirectly by U.S. persons (resident/citizen) in India. Indian financial institutions provide necessary information to the Indian tax authorities, which in turn is passed on to the U.S. Similarly, the U.S. provides information on Indians having financial assets in the U.S. Hence, it enables the automatic exchange of financial information between India and the U.S.
Indian investments subject to reporting and taxation in the US include fixed deposits, public provident funds, stocks, mutual funds, bank interest, other capital gains, and retirement contributions.
Who does FATCA apply to?
- U.S. permanent residents and green cardholders
- U.S. citizens and NRIs who have migrated to the U.S. and are now naturalised citizens.
- NRIs and people of Indian origin working in the U.S. with a B1/B2, H1-B, E-2, or L1/L2 visa.
India also signed a multilateral agreement on 3 June 2015 to automatically exchange information based on the Convention on Mutual Administrative Assistance in Tax Matters under the Common Reporting Standard (CRS). It is the international version of FATCA, applicable to citizens of CRS registered countries. Account information of residents and citizens of foreign countries other than the U.S. is reportable under CRS.