India FATCA Developments

By ZM Ishmurzina

American citizens and green card holders with financial assets in India must be prepared for the latest FATCA developments. Earlier we discussed FBARs requirements for Nonresident Indian Accounts (NRA). The India FATCA inter-government agreement is in the process of consideration by India’s capital market regulator Sebi. American expatriates should make steps to ensure the compliance with the upcoming Foreign Account Tax Compliance Act.

This is the latest email from one of our clients, American expatriates living abroad. “I am a green card holder and have lived in the USA for 5 years. I have foreign financial accounts in India. I heard some rumors about India FATCA. What is India Foreign Account Tax Compliance Act? How will it affect me personally? I have already filed the FBAR.”

Let’s review the key FATCA developments that affect American expatriates with financial accounts in India.

  • FATCA Basics. To learn more about FATCA, please read FATCA FAQ. The IRS has been in negotiations with more than 50 countries that are interested in implementing the FATCA.
  • Reporting threshold. Once the India FATCA is implemented, the IRS (Internal Revenue Service) will have an access to the detailed information about financial accounts beyond a threshold limit of $50,000 owned by US citizens and green card holders. Moreover, the India FATCA is expected to be a reciprocal agreement so the Indian authorities will have an access to the financial accounts of Indian citizens in the USA.
  • FATCA Deadline. Deadline for India FATCA implementation is expected to be on January 1, 2014.
  • IGA Model. The final model of India FATCA (Foreign Account Tax Compliance Act) has been finalized yet. There are two types of IGA under consideration. The first IGA is based upon the information exchange between governments directly. The second IGA is based upon the direct reporting by financial institutions to the Internal Revenue Service.
  • Implementation process. The implementation process faces multiple challenges. Specifically, currently the Indian financial institutions are not technically prepared to identify and track the accounts owned by US citizens and companies. Also, India has a set of Know Your Customer (KYC) requirements that must be modified to comply with the upcoming FATCA changes. Moreover, all US clients must be informed that their information will be tracked and reported to the US authorities. This is a major undertaking that has postponed that signing of India FATCA agreement. Originally this FATCA was expected to be sign at the end of 2012.
  • Exempt status. Several types of accounts will be exempt from the India FATCA reporting. Some of these accounts are retirement funds, certain insurance funds and the government agencies. Certain assets owned by the NRIs can also be exempt from the India FATCA (Foreign Account Tax Compliance Act) compliance provisions.
  • FATCA Accounts. The financial accounts to be reported include foreign financial accounts, non-account assets like foreign stocks, foreign financial instruments, interest in foreign entities and contracts with non-US persons.

Conclusion

American expatriates living in India and green card holders must realize that it is important to become compliant before the FATCA comes into effect in January 2014. Once the information about the foreign accounts is reported to the IRS, US taxpayers with these accounts cannot participate in the Offshore Voluntarily Disclosure Program (OVDP) or even the new IRS streamlined program. American expatriates must consult an expat tax CPA that provides international tax services. International tax experts at Artio Partners are here to help you.