Officially, India has not signed an agreement to participate or enforce the U.S. FATCA legislation. Short for the Foreign Account Tax Compliance Act, FATCA requires foreign banks to become the eyes and ears for the IRS. That means beginning this year, offshore banks must examine their account base and next year, report to the IRS accounts with ties to the United States. Banks that do not comply face stiff sanctions.
Without an agreement, Indian banks could find themselves in jeopardy. India, however, appears to be moving towards compliance. In late June, the Reserve Bank of India notified all Indian banks that India had agreed to the basic terms of FATCA.
Although the Indian government says it will comply, implementation will be difficult. Part of the problem is that Indian tax returns don’t already capture all of the information necessary for FATCA.
FATCA requires U.S. taxpayers to disclose foreign bank and other financial accounts. U.S. law sets the threshold quite low; if the aggregate balance of all offshore accounts exceeds just $10,000, all such accounts must be reported.
The current Indian Annual Information Return collects the following data:
Cash held in a savings account: $15,000 (equivalent USD)
Mutual fund investment: $3000 (equivalent USD)
Investment accounts: $1500 (equivalent USD)
Our counterparts in India tell us that the government’s proposed finance budget proposes to replace the Annual Information Return with a new Statement of Financial Transactions and Reportable Accounts (SFTRA).
The proposed SFTRA form would require financial institutions to report those same accounts that the IRS seeks under FATCA. In other words, the new SFTRA form would mirror the reporting obligations under FATCA.
Why is this relevant? Our largest group of foreign reporting clients is Indian. Many are dual nationals while others are Indian born American citizens or professionals here on work visas and green cards. There is a misconception in the Indian American community that India will not comply with FATCA. We think it will.
Even if India ultimately does not ink a deal with the U.S. Treasury, American prosecutors and IRS agents are still free to pursue individual Indian banks and they have. Both HSBC India and ICICI are rumored to already be cooperating with the IRS.
If you have an unreported account in India, the time to comply is quickly running out. The penalties for failure to report an offshore account are huge. For FATCA purposes, foreign accounts could include NRO, NRE, brokerage, offshore trusts, certain pension accounts and other financial assets.
Need more information about FATCA? Contact attorney Bethany Canfield at or by telephone at (414) 223-0464. All inquiries are kept confidential. Have problems with English as a second language? We have a trilingual Indian lawyer available.