India issues FATCA Self-certifications and KYC Warnings

The Government of India continues to crackdown on self-certifications and know your customer (KYC) compliance for financial accountholders.

Earlier this month the government said that the account holders of any financial institutions need to provide self-certification of compliance under US Foreign Account Tax Compliance Act (FATCA) by April 30, 2017. Failure to provide self-certification of compliance would result in the noncompliant accounts being blocked and inaccessible for any transactions.

The Indian Ministry of Finance’s Central Board of Direct Taxes said in a release that “The account holders may be informed that, in case self-certifications are not provided till 30 April 2017, the accounts would be blocked, which would mean that the financial institution would prohibit the account holder from effecting any transaction with respect to such accounts”. Originally, self-certification documentation was required to be obtained by the financial institutions by August 31, 2016, otherwise they were required to close the accounts and report the same if found to be a “reportable account” under the IGA.

In 2015 India had signed the Inter-Governmental Agreement (IGA) with the USA for implementing the Foreign Account Tax Compliance Act (FATCA).  FATCA is part of the U.S.’s answer to tracking money hidden in offshore accounts so it can be brought into the US tax net. Over 100 countries have signed on to FATCA and automatically report foreign account and income data to the US IRS.  As a result, foreign banking secrecy no longer exists: virtually all foreign banks report bank data to the IRS.

All Indian investors (including NRIs), who hold accounts in any Indian financial institutions such as mutual funds or fixed deposits, need to file a FATCA self-certification form. All joint investment account holders, including any power of attorney holders and guardians of minors also need to attach their FATCA/CRS certifications.

The account holders need to fill the details like  tax residency status in India, passport status, immigration status, and documents supporting it, such as documents stating your place of birth, occupation, income details, and tax identification number.

Account holders MUST be certain they are in full compliance with all United States reporting requirements to avoid future tax and legal problems. The IRS has established several amnesty programs, under which a previously non-compliant individual can become compliant and avoid potentially very high penalties or criminal prosecution. However these amnesty programs generally require the taxpayer to come forth before being contacted by the IRS.

Accountholders should speak with a competent US tax lawyer before completing any self-certifications or know your customer (KYC) documents for noncompliant accounts.

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