The Finance Ministry has come up with the rules for information reporting under the Foreign Account Tax Compliance Act (FATCA), spelling out the timelines and the entities have to comply with the new requirements.
The new rules are significant as it also provides reporting timelines for OECD’s Common Reporting Standard (CRS), which India signed on June 3 this year.
CRS sets out a standard basis for automatic tax information exchange between member countries (OECD and G20) through respective bilateral tax treaties.
India is one of the very few countries that have adopted a common approach for implementation of FATCA and CRS.
Most advanced countries have first adopted FATCA and are now adopting CRS
“Considering that CRS implementation has to start from January 1, 2016, the timing of the Rules is appropriate”, Himanish Chaudhuri, Partner—Financial Services, KPMG told Business Line.
The Central Board of Direct Taxes (CBDT) move to notify the rules came just a month after India and the US signed a intergovernmental agreement (IGA) to implement FATCA with a view to promote transparency between the two countries on tax matters.
The IGA was seen as an important step on part of India and the US to tackle offshore tax evasion and avoidance.
As per the IGA, Financial institutions in India will be required to report tax related information relating to U.S. account holders directly to the Indian Government, which will, in turn, relay that information to the U.S.A.
The U.S.A. will provide similar information relating to Indian account holders in the U.S, although the exchange of information is not fully reciprocal at present.
The exchange of information on an automatic basis is likely to begin by end of September 2015.
The new FATCA rules--which run into 61 pages--prescribe the information to be maintained by the reporting financial institutions in India.
Himanish said that the immediate challenge was on FATCA related reporting, which is due on August 31 this year.
“Considering that a number of industry participants across Banks, Insurance and Asset Management companies, until now, not yet reached out to their customers on FATCA, availability of data for reporting within the short window provided might be an issue”, he said.
From a reporting entity perspective, the new CBDT rules provide several exclusions in respect of FATCA compliance.
The categories of entities that are now excluded for FATCA compliance include Regional Rural Banks, Urban Cooperative Banks, State Cooperative Banks, Local Area Banks, Government pension fund for staff, Gratuity fund and Provident Funds.
Amit Maheshwari, Partner, Ashok Maheshwary & Associates, a firm of chartered accountants, said the rules will provide much needed guidance to the industry to upgrade their internal information systems for FATCA reporting and help them be compliant.
This is even as FATCA reporting has presented short term challenges for the industry, he said.