Have you recently tried to open a savings account online? Then, there is a high probability that you must have received a notification that prompted you to undertake the FATCA declaration.
While it sounds complicated, it is plain simple. Foreign Tax Compliance Act (FATCA) is nothing but declaring about your tax residence. Simply put, you have to declare whether that you are an Indian resident and you pay taxes according to the Indian tax laws.
Here’s the FATCA step while opening a Kotak 811 bank account looks like:
So, don’t stress when you see a FATCA declaration pop up. Just tick the box that states that you are an Indian resident. If you are not an Indian resident, you will have to open an NRO or NRE account as continuing with a regular savings account is illegal.
FATCA stands for Foreign Tax Compliance Act. The act aims to ensure tax compliance and to make sure that US people who have assets outside the US pay US taxes. This helps to streamline the tax reporting process. This helps to increase visibility in the foreign country and helps to gain the trust of investors.
India has signed FATCA with the US to automatically exchange financial information between the two nations which will help the two countries to find about tax evaders.
FATCA is aimed at ensuring that US persons with financial assets outside of the US pay US tax. The rule requires foreign financial institutions to give information about US people who have invested outside the US to the Internal Revenue Service (IRS) and for certain non-U.S. entities to provide information about any U.S. owners.
In a gist, the purpose of FATCA is to prevent individuals residing in the US from using banks and other financial institutions of other countries to park their money to avoid US taxation on the income generated from such assets.
Currently, all Indians and NRIs must file a FATCA self-declaration. The declaration will slightly differ between financial institutions. However, the basic requirements such as the name, Permanent Account Number (PAN), address, place (city/state) of birth, country of birth, nationality, annual income will remain the same.
You will have to declare your residential status as per the Indian tax laws. To be classified as an Indian taxpayer, you will have to meet any of the following conditions: i) if you are in India for 182 days or more in a financial year ii) you are in India for 60 days or more in the FY and 365 days or more in the four financial years immediately preceding the relevant financial year.
If you do not meet any of the above conditions, you are an NRI. In this case, you have to open an NRE or NRO account. You can continue to use a regular savings account if your tax status changes in the future.
The government had inserted rules Rules 114F to 114H and Form 61B in the Income Tax Act in 2014. The Indian Government also signed the Inter-Governmental Agreement (IGA) with the USA in 2015 to implement FATCA.
According to the agreement, Indian tax officials can obtain specific account information of US taxpayers. This will ensure tax compliance by the US citizens and at the same time, increase the transparency of the Internal Revenue Service (IRS). This gives a legal framework for various financial institutions to maintain and report personal details.
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