New Delhi: The income tax (I-T) department on Tuesday asked brokerage houses, banks, insurance companies and other financial institutions to complete the due diligence of accounts held with them by American investors by 30 April, failing which those accounts have to be suspended.
The instruction is meant to enforce an anti-tax evasion and information sharing deal between India and the US signed in 2015. The deal signed under US Foreign Account Tax Compliance Act (FATCA) enables both the countries to track down undisclosed wealth held in financial institutions in the other nation. As per the deal, financial institutions in India will share details of the investments by US taxpayers to the I-T department, which will, in turn, be shared with the Internal Revenue Service (IRS).
The US follows a system of taxing the worldwide profits of both US residents and citizens who are residents elsewhere. India on the other hand, taxes the worldwide income of only its residents, while non-residents are taxed only on the income sourced from India. Information sourced from India is crucial for the US to tax the worldwide earnings of a US citizen. FATCA laid the framework for it.
A statement from the finance ministry said that financial institutions were to complete the due diligence of accounts opened between 1 July 2014 and 31 August 2015 by 31 August 2016. However, extra time was granted in view of the difficulties encountered. A tax expert, who asked not to be named, said that poor compliance in the initial year of implementation was the reason for extending the deadline.
“Financial institutions are advised that all efforts should be made to obtain the self-certification. The account holders may be informed that, in case self-certifications are not provided till 30 April 2017, the accounts would be blocked,” said the statement. The suspension of account may be revoked once the diligence is completed. Only investments in India by US assessees above a specified threshold need to be reported to IRS.
Globally, governments, which provided fiscal stimulus to businesses during the economic crisis years, are now cracking down on what they call aggressive tax avoidance and unaccounted wealth to shore up their finances.
