Banks, MFs ask US NRIs to submit FATCA certificates
As per the new regulations, NRIs living in USA e.g. US citizens or those working in the US on H1B visa would need an FATCA-compliance certificate to be submitted to their banks. The same certificate needs to be provided to also mutual funds and before making direct investment in the capital market.
MUMBAI: Indian banks and mutual funds have in the past fortnight started warning NRIs who hold an American passport or are working in the US that their accounts could be frozen unless they get a tax-compliant certificate from US authorities, thanks to a treaty signed by New Delhi and Washington. Under the US Foreign Account Tax Compliance Act (FATCA), the two countries would share information about citizens who own properties, bank accounts and other investments in each other's territory. As per the new regulations, US citizens or those working in the US on H1B visa would need a FATCA-compliance certificate to be submitted to their banks. The same certificate needs to be provided to also mutual funds and before making direct investment in the capital market.
Banks including HDFC Bank, ICICI BankBSE -0.71 % and State Bank of India, as well as mutual funds like Reliance Mutual fund, Franklin Templeton and DSP Blackrock have asked their customers to submit the FATCA certificates. Many of these NRIs have rushed to tax experts. "We have seen our clients, who are US citizens, being asked by Indian banks, mutual funds and even stock brokers to provide FATCA status declarations.
This means that going ahead US citizens who don't give these declarations would not be able to invest or keep money in India," said Lloyd Pinto, director at Grant Thornton India. "Further, this information would be shared with the US authorities as a part of the FATCA filings which have been introduced in India earlier this year." For many, taking a US citizenship was one way of saving on tax, while for others it was a point of vanity.
It also meant convenience as many countries don't require US passport holders to get visas. Now, these NRIs who have bought real estate or made other investment in India could be taxed as per the US taxation laws. "Lately, Indian banks have started sending written communication to customers who they find out are based out of the US or have a US passport but based in India. This even applies to the H1B visa holders who are working in the US," said Jeenendra Bhandari, partner at tax and audit firm MGB & Co. "Going ahead many Indian banks would be well within their rights to even freeze accounts of clients based in India who do not submit FATCA-compliant certificates," he said.
The Fatca, meant to crack down on tax cheats, must not become a nightmare for NRIs who hold American citizenship or work in the US on H1B visas. Americans are also frowning, saying relief must be given to lawabiding citizens. It will also lessen the burden on financial institutions, without shielding taxevaders. The Same Country Safe Harbor plan will exempt American citizens who are legal residents in the country in which the accounts are held from Fatca. A Bill has been introduced in the US Senate to repeal the provisions of the law. Presumably, India has to wait till its repeal.
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