Mutual fund body, Association of Mutual Funds in India, has clarified that "freezing of account'’ does not mean "impounding of accounts''.
This clarification comes in the wake of reports in a section of media saying that 50 lakh mutual fund folios are facing risk of closure due to non-compliance of FATCA (Foreign Account Tax Compliance Act) norms.
For FATCA compliance, all that investors need to do is to provide a simple self-certification in the prescribed form that helps determine whether the investor has tax residency in other countries, particularly the US.
In the press release, AMFI said that some people seem to have misunderstood the term “freezing of accounts” to mean “impounding of accounts”.
AMFI further clarified that when a folio is ‘freezed’, the investors account would continue to earn the returns/benefits accruing in the normal course.
“The term “freezing of accounts” in mutual fund parlance merely means permitting further transaction in the account only after the requirement is fulfilled, which in the context of FATCA compliance, is to provide a self-certification about one’s tax residency,” clarified AMFI.
Earlier, the Central Board of Direct Taxation had issued a circular asking the fund houses to submit self-declaration of all investors who had invested in mutual fund schemes between July 1, 2014 and August 31, 2015 to comply with FATCA regulations.
The circular stated that failing to comply with the norms may attract closure of unreported accounts. Fund houses are required to submit the self-declaration forms by August 31, 2016.
FATCA is an anti-tax evasion law under which fund houses are required to report information on US investors to US IRS (Internal Revenue Service) through CBDT.
India has agreed ‘in substance’ to FATCA by signing an Intergovernmental Agreement Model 1 (IGA-1) with US.
Mutual funds and their registrars have been making concerted and persistent efforts to obtain FATCA self-certification from the investors through various modes since the FATCA compliance became a law.
In fact, for the ease and convenience of investors, the mutual fund registrars - CAMS, Karvy and Sundaram BNP Paribas Fund Services - have facilitated submitting a single FATCA self-certification form for all the mutual funds serviced by the respective RTAs through an online mode wherein an customer could provide the information online through a specified link/URL.
For example, if the FATCA self-certification has already been submitted to CAMS or any one of the mutual funds serviced by CAMS, there is no need to submit the same once again for other mutual funds serviced by CAMS. Like-wise, for KARVY and Sundaram, AMFI clarified further.