The pact aims to cover automatic sharing of information on bank accounts as well as financial products such as equities, mutual funds and insurance
New Delhi: The ambitious anti-offshore tax evasion and black money detection pact between India and the US—Foreign Account Tax Compliance Act (FATCA)—will become operational from Wednesday.
The pact aims to cover automatic sharing of information on bank accounts as well as financial products such as equities, mutual funds and insurance, and is aimed at fighting the menace of black money stashed abroad.
“The Foreign Account Tax Compliance Act (FATCA) will get operational from September 30 as it was decided between the two countries. All protocols and procedures have been put in place by Indian authorities in this regard," a senior finance ministry official said.
Beginning Wednesday, banks, mutual funds, insurance, pension and stock-broking firms will report their Indian client details to the US which will be shared with New Delhi. Indian entities will do a reciprocal information sharing about Americans and it will cover all new accounts opened by Indian financial institutions from 1 July 2014.
An official agreement in this regard was signed by the then revenue secretary Shaktikanta Das and US ambassador to India Richard Verma in July in New Delhi.
The Central Board of Direct Taxes (CBDT), the nodal body to deal with the activities under this pact and the apex policy-making body of the income tax department, has also created an information security committee (ISC) as part of the standard operating procedures to implement the pact. If a financial institution does not comply to FATCA, it will have to pay 30% penalty tax on all its US revenues, including dividend, interest, fees and sales.
The pact will also help India deal with the menace of black money in foreign shores and will enhance cooperation between India and US in this specialised area. The US had enacted FATCA in 2010 to obtain information on accounts held by US taxpayers in other countries. It requires US financial institutions to withhold a portion of payments made to foreign financial institutions (FFIs) who do not agree to identify and report information on US account holders. The US has signed the said pact with over 100 jurisdictions across the globe and is engaged in related discussions with many other nations.
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