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ET in the classroom: No hiding from the US taxman

If you are a mutual fund investor, you would be flooded with mails asking for additional information about yourself and your tax residency status.
If you are a mutual fund investor, you would be flooded with mails asking for additional information about yourself and your tax residency status.
If you are a mutual fund investor, you would be flooded with mails asking for additional information about yourself and your tax residency status called as FATCA declaration. ET looks at what this is.

1. What is FATCA compliance?

FATCA stands for the Foreign Account Tax Compliance Act, a US tax initiative that requires all financial institutions (including Indian mutual funds) to report financial transactions of US persons including entities in which US persons hold a substantial ownership etc to the relevant tax authorities. It is introduced by the US Department of Treasury and the US Internal Revenue Service (IRS).

2. Why is this law applicable for MF investments in India?

In case of FATCA, the governments of India and the US have reached an agreement to implement FATCA with effect from April 11, 2014. Indian mutual funds are required to share financial account/asset information of account holders who are tax residents of US. To comply, mutual funds need to seek additional personal, tax and beneficial owner information and certain certifications and documentation from unit holders.

3. Are only individual investors or non-individual investors or only NRI investors required to provide this information?

All investors (including new and existing) have to provide information for FATCA. Existing investors will have to provide the information in the stand alone FATCA declaration form available on mutual fund house website or they can update this information online on AMC/registrar website.

4. What information should the investor provide?

Investors are expected to provide details such as country of tax residence, tax identification number, country of birth, country of citizenship, etc. at the time of initial investment or opening of folio. In case of non-individual investors, the above mentioned information of any of the controlling persons will have to be submitted. If you have been paying taxes in any country apart from India, you need to provide the tax identification number or any such number equivalent to the Permanent Account Number (PAN) here.

5. To whom will the mutual fund house report this information?

The fund house will have to report the information to the Indian Income Tax Department or any other agency to be appointed by Government of India who would then transmit the financial information to the relevant tax authority.

6. What happens if you do not comply with this regulation by January 1, 2016?

Effective January 1, 2016 no additional subscriptions or switch in existing folios will be allowed unless complied. SIPs and STPs that are registered, will continue to be processed as of now.
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