NRIs, PIO and OCI to Share Tax Info Under FATCA/CRS Agreement
Why FATCA was rolled out?
Non-Residents of India (NRIs) in the USA are already aware of FATCA alias Foreign Account Tax Compliance Act. This law is basically constituted for exchanging the information of the non-US citizens’ assets between India and the US.
By the finance books, the income earned beyond certain caps are considered as taxable income. And there is a list of income that comes under taxability. But there are some citizens who evade taxes. Such intentions are mostly found in the emigrants who earn from the residence country as well as the country of their origin.
Let’s say, an NRI generates income from his heritage property in India. And he has another source, i.e. his job, of income in the US. Despite having inflow of income from two sources, he pays tax against the income from the job in the US. It implies that he evades tax to be paid on the income earned through property in India (which is taxable in India). To combat such kind of stealing of tax, FATCA was rolled out.
This law represents an international standard set between both countries to enhance transparency of the Internal Revenue Service (IRS). Under it, the income recipient has to provide intense detail of income earned from wherever or whatever source in any country.
What is CRS Agreement?
The emigrant tax evaders from India would have to face off jolt. Now, Common Reporting Standards (CRS) agreement is inked by India. It is an international standard that automates the sharing of emigrant’s detailed tax information by the signatory countries. Around 87 countries, including Australia, UK, Canada, Korea, and many more, are now abided by this tenet.
Resultantly, the citizens who have bank accounts in various countries would face off its affect very soon. Unlike FATCA that affects only Americans and green card holders, this standard will influence relatively large ambit that includes 87 countries.
Although India joined this league on November 2, 2016, but no information has been exchanged yet. The exchange will be initiated in September month this year (2017).
Why this agreement?
As foresaid, CRS agreement mandates exchange of tax payers’ information between the member nations. This concrete step will prove utmost helpful in tapping the non-taxpayers. Tracing such tax-evaders has been a bone of contention for many countries.
Emigrants, who undoubtedly are the major contributors in nation’s GDP (Gross Domestic Product), would be targeted primarily through it. Therefore, this kind of reporting will prove a blessing in disguise for many countries, like India.
Who would be affected by this agreement in India?
This reporting will target the people who have their bank accounts across their residence country. Therefore, non-residents (NRIs), persons of Indian origin (PIOs) and overseas citizens of India (OCIs) would be affected primarily. Such people would have their bank accounts in the native country as well as the country where they live.
Many of them have been enjoying the best NRI services from the banks in various countries. But now, this reporting would cease such practice.
Banks have initiated circulating this circular to its customers. Although the banks may not directly inform about the CRS but they would ask their identity, tax status, tax identity number, residency status and citizenship etc. A few countries, like Canada, many not require birth proof also along with other documents. This initiative will let the countries procure necessary details that are mandatory under FATCA/CRS regulation.
What kind of accounts shall be shared in reporting?
The account holders must look into the roundup of the details mentioned below. Bear in mind that each bank account holder must provide the detail individually. These points will help them to get set with the following documents:
· Birth proof (not asked by all countries)
· Tax Identification Number (TIN), if any
· Tax details of the residence country’s bank
· Account number
· How much balance is there in the accounts
· Interest/dividend/gross proceeds or any other kind of income sourced through bank
Catch on the kind of bank accounts that must be reported:
· NRE or NRO bank account
· Mutual funds
· Brokerage accounts
· Custodial accounts
· Annuity contracts
· Life insurance policies
What will be the consequences of unshared account details?
As far as the consequences are concerned, those who would not respond to share the asked information, their bank accounts shall be frozen within 15 days of the information received. Later, they might be closed if would receive no response.
The consequence may vary from country to country.