FATCA non-compliant accounts not blocked automatically

Chennai, May 2 (IANS) There were no automatic blocking of bank accounts that did not comply with Foreign Account Tax Compliance Act (FATCA).

However, in the case of mutual funds, the blocking kicked in automatically, according to industry officials.

"The FATCA non-compliant bank accounts did not get blocked. Perhaps the patch for the software is not yet ready. Till the last week of April we were under impression that FATCA is applicable only for those having accounts overseas or for foreigners having accounts in India," an experienced official with a government-owned bank told IANS preferring anonymity.

"Only during the last week of April we were told to get all the bank accounts FATCA compliant. That's not an easy task," he added.

The situation in the mutual fund industry is different.

"In case of FATCA non-compliant (mutual fund) folios, an investor will not be able to redeem unless the account gets compliant. Once the investor gives the declaration then the folio gets compliant and redemptions can be done," Balasubramanian, Chairman, Association of Mutual Funds in India (AMFI) told IANS on Tuesday.

"Investments in the case of systematic investment plan (SIP), where the monthly instalments are to be received from the banks will not be affected. The investments will continue to happen," Balasubramanian added.

"As per the mutual fund industry data, the total number of folios that were not FATCA compliant were between 8-9 lakh. Subsequently some of the investors may have submitted the self-certification forms," Gaurav Nagori, Senior Vice President-Head of Customer Service and Operation, DSP Blackrock Mutual Fund, told IANS.

Balasubramanian said compliance is an easy process.

The Central Board of Direct Taxes (CBDT), in a statement issued earlier, had said account holders of banks, mutual funds and National Pension Schemes (NPS) would have to be informed that their accounts would be blocked if self-certifications were not submitted by April 30, 2017.

What is FATCA?

"FATCA is a unique piece of legislation, enacted in the US, which requires financial institutions (FIs) to provide information about account holders who are US persons to the Internal Revenue Service (IRS)."

"Non-compliant FIs are liable to a punitive withholding tax of 30 per cent of their US sourced income," Rahul Jain, Partner, Nangia and Co, an international tax advisory and accounting firm, told IANS.

"The agreement is reciprocal in nature and allows for India to receive tax information in respect of its own residents," he said.

"The FATCA agreement will, therefore, allow for exchange of information between the two countries and will help considerably in detection of unaccounted money held by US persons in India and vice versa," he added.

Under Indian Income Tax rules, financial institutions have to obtain self-certification and carry out due diligence in respect of all individual and entity accounts opened between July 1, 2014, and August 31, 2015.

The last date for submission of self-certification ended on April 30, 2017.

According to Jain, any organisation or individual who has not been able to submit its or his FATCA self-declaration by the deadline of April 30 could make such declaration now and ask for his account with the Indian FIs to be unblocked or de-frozen.

(This story has not been edited by Social News XYZ staff and is auto-generated from a syndicated feed.)