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Impact of FATCA on US NRIs

US NRIs holding investments in their native country have to comply with FATCA (Foreign Account Tax Compliance Act) regulations. Know all you need to in this post- What is it, how NRIs need to comply with it and more. Keep reading.

It makes sense for you as a US NRI (Non-resident Indian) to explore investment opportunities in your homeland, right? But are you aware of the US Government’s Foreign Account Tax Compliance Act (FACTA)?  Under the concept, a US person (resident & NRI) must comply with FATCA regulations and disclose his/her worldwide income and assets to the tax authorities.  Non-compliance may result in fines and penalties. Let’s find out how FATCA impacts US NRIs.

What is FATCA?

FATCA was launched in 2010 to enhance transparency in the financial services sector at the global level. It was endorsed as part of the Hiring Incentives to Restore Employment (HIRE) Act to curtail the practice of dodging tax in the US.  Under FATCA rules, all US taxpayers must share details of assets and earnings from overseas investments. The financial institutions (brokerage firms, banks, mutual funds, insurance companies, etc.) registered under FATCA have the power to suppress tax if the documentation requirements are not fulfilled. They are authorised to notify the Internal Revenue Service (IRS) immediately on encountering cases of tax evasion.

India-US FATCA Pact:

India inked the FATCA pact with the US in 2015. According to the inter-governmental agreement (IGA), Indian tax officials are required to procure relevant information about US account holders and relay it to the IRS. As of January 2016, all NRI investors (fresh and existing) must mandatorily file a FATCA self-declaration through 114F to 114H and Form 61B of the Revenue Tax Act.  Also, tax residency numbers and Indian passports need to be provided. Failure to abide by FATCA directives can result in freezing of bank accounts, blocking of NPS/PPF account, and suspension of mutual fund investment.

FATCA Self-Declaration for NRIs:

The standard information that NRIs need to file for FATCA self-declaration is:

  • Name
  • Permanent Account Number
  • Address
  • Place (city/state) of birth
  • Country of birth
  • Nationality
  • Gross Annual Income
  • Occupation
  • Whether a resident of another country? If yes, then details of the same, Tax ID number, and type.

Any change in particulars needs to be intimated to the financial institute/intermediary within 30 days.

FATCA applies to the following: ref link

  • US permanent residents/green cardholders
  • US citizens (NRIs who have migrated to the US on Indian passports and are now naturalised citizens of the US)
  • NRIs working/living in the US through B1/B2, H1-B, E-2, or L1/L2 visa

Impact of FATCA on US NRIs:

FATCA reporting requirements for Indians with US status include the following:

  • Fixed deposits
  • PPF
  • Stocks 
  • Mutual Funds
  • Bank Interest
  • Life Insurance Policies
  • Capital gains
  • Retirement contributions
  • NRE, NRO, and FCNR accounts

House property, safety deposit boxes, antiques, jewellery, art pieces, cars, and other collectibles are not deemed financial assets and hence not impacted by FATCA.

Final Thoughts

Indians with US status must keep the FATCA regulations in mind before investing in the native country. Compliance with IRS and the US tax laws can avert the odds of facing civil/criminal proceedings in the future.

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