FATCA – What is it and Who in India Required to File Form 61B ?- Part 1

The new information exchange regime – FATCA or Foreign Account Tax Compliance Act – which is almost exclusively for the benefit of Uncle SAM ( It should be noted that udner Agreement India will also get information from USA about Indians having income sourced in USA) is reality and now -firms, AOP or companies or Non-Banking Financial Companies , Trust , Mutual Fund companies, insurance companies -are responsible for filing an annual return with Income Tax Department which will handover the information to their counterpart i.e Internal Revenue Service. A series of posts will be published over coming weeks to cover all topics related to this new responsibility on shoulders of Indians.

Why FATCA ? Watch The Video

FATCA is a US law , which stands for Foreign Account Tax Compliance Act which targets US taxpayers who have offshore accounts or financial transactions outside USA . FATCA relies on reporting non-compliance by US taxpayers with foreign accounts .

  • By U.S. taxpayers about certain foreign financial accounts and offshore assets
  • By foreign financial institutions about financial accounts held by U.S. taxpayers or foreign entities in which U.S. taxpayers hold a substantial ownership interest

I find this video quite interesting to make you understand why the FATCA was enacted by USA .

How USA compels everyone from India to abide by its law?

Now it is clear that the law enacted by the USA may not be respected by Indians or firms, or companies doing business in India . In order to create a legally binding responsibility on FIIs based in foreign countries USA devised two types of agreements:

  • Model 1 IGA – Inter Governmental Agreements
    Model 2- IGA

Under Model 1, the reporting is first done to a designated authority of India ( CBDT) and then the designated authority passes on the information to designated authority (IRS) of USA. India signed Model 1 of IGA on 9th July 2015 ,thus the government of India enacted amendments to Income Tax Act , notified Rules and Forms for reporting requirement.

Which section & rules under I.T.Act & I.T.Rules deal with FATCA ?

Finance Act 2014 brought in amendment in section 285BA in the Income Tax Act to provide a legal framework for implementation of FATCA. Rules 114F to 114H have been notified vide Notification No. 62 of 2015 dated 7th August, 2015 . Relevant Form 61B has also been notified.

Who in India must report under FATCA?

Rule  114G (I) casts an obligation on “Reporting Financial Institutions” to maintain and report certain information in respect of each “Re-portable Account”. Further ,”Reporting Financial Institution” is defined in Rule 114F (7) to mean

  1. A financial institution (other than a non-reporting financial institution) which is resident in  India, but excludes any  branch of such  institution that  is located outside India: and
  2. any branch of  a financial institution (other than a non-reporting financial institution) which is not resident in India, if that branch is located in

How to Know if one is Reporting Financial Institution

As per the Rules ,   legal persons or legal arrangement ( in other words , firms, Association of Persons, Companies, Trust, Insurance Companies, Banking Companies etc) who are resident of India and carries any financial  business like :

  1. Custodial institutions,
  2. Depository institutions,  
  3. Investment entities and
  4. Specified insurance companies.

are Reporting Financial Institution. In an easy language , one can say everyone except Individual who are doing any business out of following :

  1. Banking
  2. NBFC
  3. Company
  4. Firm
  5. TRUST
  6. Insurance Companies
  7. Depository Business

The definition is quite wide. Anything to do with the finance or generating income are covered. There are also certain exempted categories of entities who are not required to report under the new law . This topic about the exempt categories will be covered separately.

Is Individual carrying sole proprietorship business responsible for filing reports us/ 285A?

Only entities can be Reporting Financial Institution . Further, as per Rule , the term “Entity” would include legal persons and legal arrangements, such as corporations, partnerships, trusts, and foundations. Therefore , Individual are not made accountable for filing any report in context of FATCA.

So Only Entities Resident in India are Required to File Report under FATCA?

Not really. The Rule provides that a non resident company or entity having any branch in India will also have to file the report . Similarly, the branch of resident entities outside India is not required to file report .

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