The Government of the United States of America (USA) enacted Foreign Account Tax Compliance Act (‘FATCA’) in 2010 with an intention to curb tax evasion by U.S. citizens and residents maintaining accounts in foreign countries and not disclosing them in their US tax returns.
In order to make FATCA functional, the Internal Revenue Service (‘IRS’) in the USA has entered into Inter Governmental Agreements (‘IGAs’) with various countries including India.
Under this IGA between USA and India, Financial institutions (‘FIs’) in India will have to provide information about US citizens / residents holding accounts with them to the Indian tax authorities which in turn will pass on this information to the concerned US authorities. Similarly, such relevant information relating to the Indians residents will also be passed from USA to India.
On similar lines India alongwith other countries have also adopted Common Reporting Standard (‘CRS’) for automatic exchange of information. This functions on almost the same concept as FATCA wherein countries exchange the information of accounts held by residents of other countries with their respective resident countries.
Hence, as a part of this arrangement under FATCA / CRS, the financial institutions in India like bank, mutual funds etc. would require the NRIs to submit various information. One should take utmost care that all the right details are provided to these financial institutions keeping in mind the fact that these details will then be automatically exchanged with government of respective countries.