Home >Money >Personal-finance >What Fatca requirements mean for your mutual fund investments

You must have received an email or a letter from your mutual fund (MF), if you have been investing in MFs, asking for some details. If you haven’t yet received such communication, you might receive a letter or email shortly. Your fund house wants to know if you pay taxes or have tax residency in any other country as well. Here’s why:


Due to a new Act called the Foreign Account Tax Compliance Act (Fatca), which was passed in the US in 2010, financial institutions in many countries are required to disclose details of their clients’ income, and if they are either residents of the US or financially connected to the US or have any tax residency in US. US residents could either be citizens or green card holders. The rule was enacted to prevent tax evasion through offshore investments that some residents may have.


The US has for long required its residents to disclose all their international income as well. But since such voluntary disclosures did not take place at the pace that was needed, the US then enacted the Fatca law, whereby the US government decided to put the onus on companies and firms around the world to get this information. To that effect, it has so far signed Inter Government Agreements (IGA) with more than 50 countries, including India, making it mandatory for these countries’ financial institutions, such as banks, insurance companies and mutual funds, to furnish details of clients or investors who are based in the US. If the firms refuse to cooperate, the Act allows the US government to deduct 30% tax from these companies if they are already registered or doing business in the US.


According to the Fatca guidelines, this information needs to be collected only from those investors who have opened “accounts" on or after 1 July 2014 or if they have an account as on 30 June 2014 wherein the value of investments is above $50,000. “Accounts" here mean folios in MF parlance. The details asked are very basic. All your fund house needs to know is your country of birth, the country in which you live (yes, most of you will say India), and whether you pay taxes in any other country apart from India.

For instance, you could have stayed in the US for some years or might be a US citizen living in India for some years now, but paying taxes in both countries. If you have been paying taxes in any country apart from India, you need to provide the tax identification number or any such number equivalent to the Permanent Account Number (PAN) here.

Some fund houses have already started reaching out to investors directly. Some have started contacting distributors who have been tasked to provide information. Therefore, distributors may come and ask you or revert to fund houses directly if they have enough proof that their clients have no connection to the US.

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