CBDT’s Guidance Notes On Implementation Of FATCA Reporting Requirements Under Rules 114F to 114H Of Income-tax Rules
The Central Board of Direct Taxes (CBDT) has issued guidance notes dated 31.08.2015 on implementation of reporting requirements for the US law called “Foreign Account Tax Compliance Act” (FATCA). Under FATCA, foreign financial institutions that fail to give information about their American clients to US authorities would face 30 per cent withholding tax. FATCA provides for 30 per cent withholding tax on US source payments made to foreign financial institutions (FIs) unless they enter into agreement with Internal Revenue Service (IRS) to provide information about accounts held with them by USA persons or entities controlled by USA persons.
The Inter-Governmental Agreement (IGA) between India and US, signed as part of FATCA implementation, requires the Indian FIs to provide necessary information to Indian tax authorities, which will then be transmitted to the US automatically.
To combat offshore tax evasion and avoidance and stashing of unaccounted money abroad requiring cooperation amongst tax authorities, the G20 and OECD countries have developed a Common Reporting Standard (CRS) on Automatic Exchange of Information ( AEOI). The CBDT’s guidance notes are also for CRS.
It is worth noting that India is one of the early adopters of the new global standards in the form of CRS and has committed to exchange information automatically by 2017.