To combat possible tax evasion by Americans through Indian entities, the Securities and Exchange Board of India (SEBI) planned to issue the Foreign Account Tax Compliance Act (FATCA) compliance norms in the fiscal year 2014-15. For the implementation of the FATCA, the US government is required to sign Inter-Government Agreement (IGA) with various countries, including India, where American individuals and companies may hold accounts and other assets. Till now, the USA has signed IGAs with 22 countries viz. the UK, Switzerland, etc.
- Currently, the negotiations are going on between the India and US for an IGA to be signed between the two countries under the FATCA.
- Purpose of FATCA: To check and impose withholding tax on illicit activities of some wealthy individuals who use offshore accounts to evade millions of dollars in taxes.
- Once this new Act and the Indo-US IGA come into effect, all financial institutions in India would need to carry out a detailed due diligence on all their clients and report details of their US clients to the US tax department (Internal Revenue Service).
- Any non-compliance of the FATCA provisions would result in penal withholding of 30% of the total US-source income of such financial institutions.
SEBI would examine the applicability of the FATCA provisions to all market intermediaries regulated by the capital markets regulator. It was examined by SEBI in coordination with the Ministry of Finance.
Note: FATCA became a law in 2010, the final regulations were issued for it in January 2013 and it is set to come into effect from 1 July 2014, after signing of IGAs with different countries.