Every non-resident Indian (NRI)
resident in United States of America (US or USA) has an obligation to timely
file true and accurate returns and forms to IRS. Any non-compliance may invite
penalties or even criminal prosecution.
To give effect to FATCA, Indian
financial institutions will either seek self-certification from the NRIs about
their status. In case the NRIs have US indicia, the institutions will ask them
to provide Form W - 9 which apart from other details have provision for
disclosing US TIN. All these details will be reported by the financial institution to Indian tax authorities which will share it with
IRS.
The financial institution will also,
on an annual basis share the details about the value of the account maintained
by NRI as on December 31. Thus, an NRI’s income in India will get reported to
IRS by the Indian financial institutions. Since, US follows a world-wide income
tax concept and the DTAA between India and US mostly provides for taxation of
the income by both the countries, it becomes mandatory to disclose all such
income in the income tax return filed with IRS. Of course, it is open to them
to off-set the income tax liability in the US by the amount of income tax
already paid in India.
American residents are already
required to annually file Foreign Bank Accounts Report (FBAR) to the Department
of Treasury. FBAR is to be filed when a US person has a financial interest in
or signature authority over foreign financial accounts if the aggregate value
of the foreign financial accounts exceeds USD 10,000 at any time during the
calendar year. The financial accounts to
be reported are bank account, brokerage account, mutual fund, trust or other
type of foreign financial account.
It can be seen that there is a self
(FBAR) as well as third party (FATCA) reporting for foreign financial accounts.
Though the definition of financial account is not the same between the two
requirements but there is substantial over-lap. Other differences pertains to
the minimum value threshold and the period for which the value shall be
reported. At the same time, the two reports can be compared to seek information
in case of any difference between the two.
For more details and to know if you are compliant, get in touch at ruchira@thejurisociis.com
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