Impact of FATCA on NRIs living in the US

The recently enacted FATCA makes it mandatory for Indian tax authorities to share information about earnings of NRIs in US. However both India and US have a treaty signed to avoid double taxation. NRIs living in US can certainly benefit from this treaty

The US government has recently enacted Foreign Account Tax Compliance Act (FATCA), which is primarily intended to detect and thus discourage tax evasion by persons living and earning in United States. However, it is expected to have an impact that extends far beyond tax obligations as it requires an attitudinal change in so far as tax compliance is concerned. And for people of Indian origin living in the US it calls for proper accounting of their earnings on their investments in India, if not done so far, to ensure that they comply with the tax regulations in their host country.

How does India come into the picture?

As per the communication issued to all commercial banks on 27 June, 2014, the Reserve Bank of India (RBI) has advised that governments of India and US have reached an agreement in substance on the terms of an Inter-Government Agreement (IGA) to implement FATCA and that India is now treated as having an IGA in effect from 11 April 2014. The IGA, however, would be signed only after the approval of cabinet. RBI has, therefore, inter-alia advised banks and financial institutions to register with US authorities and obtain a Global Intermediary Identification Number (GIIN) by 31 December 2014 to enable them to comply with the requirements under FATCA.
Similar instructions have been issued by market regulator Securities and Exchange Board of India (SEBI) also on 30 June, 2014 to the capital market intermediaries, including stock exchanges, stock brokers, mutual funds, depositories, depository participants and portfolio managers.  In effect, it applies to all financial intermediaries who handle investments in India by non-resident Indians (NRIs) living in the US.
As per the Model 1 of IGA agreed to be signed by the Indian government, Indian financial entities, which in FATCA terminology are called as ‘Foreign Financial Institutions’ (FFI) will be required to report information on US account holders to India’s Central Board of Direct Taxes (CBDT), which would then collate and share the information with the Internal Revenue Service (IRS) of US. The US has so far signed IGAs with over two dozen countries including the UK and Switzerland.
Under the agreement, FATCA requires all foreign financial institutions (FFI) to report information about financial accounts held by US taxpayers and or foreign entities in which US taxpayers hold a substantial ownership interest. In short, FATCA will require FFIs to enter into an agreement with the US Internal Revenue Service (IRS) whereby they agree to:     
identify their US account holders;
report certain information of such account holders annually to the IRS; and
withhold tax on payments to recalcitrant US taxpayers and to non-participating FFIs and close accounts belonging to recalcitrant account holders.

If FFIs do not comply, they will suffer a 30% withholding tax on payments of US source income or capital into their institution, irrespective of whether payments are made to the institution itself or on behalf of its clients.

How to identify US persons under the FATCA?

An individual account holder is treated as having US indicia or indicators if the account includes any of the following:

US Citizenship
Lawful permanent resident (green card) status
A US birthplace.
A US residence address or a US correspondence address including a US PO box.
Standing instructions to transfer funds to an account maintained in the US or directions regularly received from a US address.
An ‘in care of’ address or a ‘hold mail address’ that is the sole address with respect to the client or
A power of attorney or signatory authority granted to a person with a US address.

Having one of these indicators does not mean that the account is owned by a US person, only that it must be given closer scrutiny for identifying their US account holders for reporting as required under the act.

How does this impact NRIs living and earning in US?

Like any other US citizen, non-resident Indians or NRIs too living in US and having investments and assets in India are required to declare details of their earnings in India and pay tax thereon to the US government according to the laws of that country. Even if the income is earned in India and is exempt from income tax in India as per the Indian tax laws, it may not be tax free in US and it may be subject to local taxes. Under the new enactment, the IRS of US will get these details directly from the Indian government, so much so, it is advisable for all tax payers to collate this information meticulously and submit it to the US tax authorities to pre-empt any inquiries from them. But it is best to consult your local tax advisor in this regard and be guided accordingly.  
However, there is an agreement called “India US double taxation avoidance treaty” entered into between India and US in 1990 for the avoidance of double taxation for residents of both the countries and NRIs can certainly benefit from this treaty as well.

To learn more about how FATCA might impact you and the benefits available under the India US double taxation avoidance treaty, it is advisable to visit the website of IRS of US Government and also consult your tax advisor for more information.
(The writer is a financial analyst and writes for Moneylife under the pen-name ‘Gurpur’)



Sunil Kololgi

1 year ago

Does FATCA apply to India rupee Accounts from before an Indian went to USA and became Green Card holder/USA Citizen ?

It should not as these earnings had nothing to do with USA, in the first place. But the fear and confusion may make some people over react & close/withdraw everything?!

simplified laws

2 years ago

oh great think to read this blog.really this one give me broad information about nri taxation thanks ti shared this blog.">Guide to Taxation and Legal Concern

Nagesh Kini

3 years ago

This is extremely timely.
It is high time our 'desis' wake up and not blindly believe 'what is tax exempt in India, no tax is payable in the US'.

Deepak Parekh, Zainulbhai appointed as independent directors on Network18 board

RIL, after completing the takeover of Network18 group, had appointed HDFC chairman Parekh and McKinsey India director Zainulbhai as independent directors on Network18 board

In a statement, Reliance Industries Ltd (RIL), India's largest private sector conglomerate said its Independent Media Trust (IMT) completed acquisition of control of Network 18 Media and Investments Limited (NW18), including its subsidiary TV18 Broadcast Limited (TV18).


The company said, Deepak S Parekh, chairman of Housing Development Finance Corporation (HDFC) and Adil Zainulbhai, senior advisor of McKinsey India, have been inducted as independent directors on the board of NW18. Raghav Bahl, founder of the media group, will continue to be on the board of NW18 as a non-executive director, RIL said in a statement.


With the completion of this transaction, IMT and RIL have become promoters of NW18 and TV18. The open offers to the public shareholders for acquisition of equity shares of NW18, TV18 and Infomedia Press Ltd, as announced on 29 May 2014 by IMT are in process and the draft letter of offer has been filed with SEBI for its comments, the release said.


RIL closed Monday marginally down at Rs1,026, while Network18 (NW18) shares jumped 5% to Rs60 on the BSE. TV18 closed 3% down at Rs30.8 while the 30-share S&P BSE Sensex ended the day marginally higher at 26,100.


CSR Needs a Re-think

Modi Sarkar must junk UPA’s flawed approach

Narendra Modi’s government has sensibly extended the extremely restrictive scope of the corporate social responsibility (CSR) guidelines prescribed earlier by the ministry of corporate affairs (MCA). As with most decisions of the United Progressive Alliance (UPA), the ‘mandatory’ CSR rules were structured to drive a torrent of private corporate funds to a few narrow areas and entities selected by the government.

Although the UPA government stopped short of introducing penalties for failure to comply with the CSR rules, these would, undoubtedly, have come in an UPA3. After all, the structure for a perpetual and an expensive bureaucracy had already been put in place in through the National Foundation for CSR (NFCSR) under the Indian Institute of Corporate Affairs (IICA).

The NFCSR is a government-promoted NGO which will raise funds and spend them for capacity building and awards like any other industry body. The UPA found nothing incongruous in its establishment, or that of IICA, which is a separate and needless body that could as well do what the NFCSR plans to do.

Under UPA, IICA would probably have morphed into a regulator to prod and punish corporate India to spend a gigantic Rs30,000 crore of private sector profits for ‘socially responsible activities’.

Will Modi Sarkar put a stop to this ridiculous waste? Or is it too soon for an about turn, especially since lakhs of NGOs and thousands of consultants have their eye on the CSR gravy train? Although there is a crowd of vested interests eyeing this pool of funds, we believe that the government needs to pause and review rather than push forward with hasty implementation of mandatory CSR. I say this even though we have a sister entity called Moneylife Foundation that urgently needs to raise funds for its activities.

First, we need to step away from the UPA philosophy, where the government itself behaved like a large NGO which spread its benevolence in select areas and through select organisations. Second, the Intelligence Bureau (IB) report, as well as other data on the NGO sector, suggests that there is need for a massive clean-up before pumping valuable, post-tax money belonging to investors, into CSR.

According to a 2009 study commissioned by the government, India has a staggering 3.3 million active not-for-profit organisations. This translates to one NGO per 400 Indians—a multiple of the number of primary health centres or primary schools. Of these, an elite set of NGOs receives substantial foreign donations and, as the IB report suggests, some of these are being used for anti-national activities.

The government also is a big donor of land and money to NGOs. The Planning Commission has set aside Rs18,000 crore for the social sector in the XI Plan; in addition, NGOs receive funds from state governments and Union ministries. Further, various regulators, such as the Reserve Bank of India (Depositors Education & Awareness Fund), MCA (Investor Education & Protection Fund) and the capital market regulator have appropriated a few thousand crore rupees of unclaimed money belonging to investors and depositors.

It is common knowledge that a large chunk of this money is either mis-utilised or siphoned away. Isn’t it correct that we demand some transparency, disclosures and weeding out of a few million dubious, or defunct, NGOs before allowing the government to direct private sector funds to them?

More importantly, CSR ought to be defined by the core competency of the corporate donor, rather than funnel funds to areas selected by the government. On 18th June, MCA, in a welcome move, expanded the list of areas eligible for CSR funding. But this is patchwork. Domain knowledge ought to have a role in deciding what a company should consider ‘socially responsible’ work for itself. Here is what we mean.

What would CSR be for an advertising agency? Campaigns to spread awareness about road safety, or cancer, done free of cost for an NGO. Similarly, for an IT company, email or hosting services provided free, or the development of a socially useful app, is appropriate CSR.

Companies ought to have the freedom to direct CSR to the right causes, based on their expertise or area of operation.

Also, so long as an NGO is transparent about its activity and accounts, and meets the income-tax department’s criteria for tax exemptions, why should MCA decide whether or not it will be eligible for corporate funds under CSR? Hopefully a forward thinking Modi Sarkar will realise that CSR by coercion and fiat will only lead to leakage and diversion of funds and defeat its basic objective. What is worse, it will choke funding to many deserving activities and entities especially small and earnest start-ups in the not-for-profit sector.



Nagesh Kini

3 years ago

The Union Budget 2014 envisages changes!


3 years ago

your writeup is basically concluding that CSR activity for a corporate is only circling down to donating money to NGOs. i doubt that is the vision behind it. Theso called responsibility bestowed upon the corporate sector is not just to spend but to undertake activities and showcase their effort to the public and not the govt. A corporate should have its own Social Agenda to wrok towards and NGOs ideally shouldnt feature in it as the dominant part. CSR spending should not be reduced to a mere bill payment exercise at the end of the year.


Sucheta Dalal

In Reply to sidsharma 3 years ago

With due respect, your understanding is flawed and scary.
First, a corporate according to UPA2 was any company that has a profit, irrespective of size.
Second, a persons sets up a company for a specific purpose. They toil to make it run and under UPA2, it was a struggle to meet all the red tape and compliances. This included the tax torsion.
It is extraordinary to tell a company that in addition to the business you run, you willa leo take up another activity by compulsion, from among a list of 20 or 30 selected by the government and will be held accountable for it, no matter whether you have the inclination, expertise or vision for it.
This is ridiculous and undemocratic. You cannot force anybody to have a "social agenda" apart from the business they run. The minute you FORCE people, they will cut corners and it will dwindle into corrupt practices.
Even in communist regimes, I doubt government can "force" people to undertake a "social agenda" that is outside their core competence.

What I am arguing is that asking them to extend their regular business for social causes.
Try running a business in India. We do. When we have no accountant the govt does not care. There is draconian penalty.

The TV18 group sacked 300 people. Did the government care? What about social responsibility to the employees who are out without a pension? Does anyone care? Certainly not the UPA2 which dreamt up mandatory CSR. Imagine the anguish of a TV18 employee who cannot pay EMI to know that 2% of net profit will go to all kinds of social causes that the government ought to have take care of -- as its duty -- while he/she have no job?
This is the private sector we are talking about. Try to think about what you are saying when you talk compulsion.

Simple Indian

In Reply to Sucheta Dalal 3 years ago

I agree with your arguments against compulsory CSR thrust on corporate sector by the earlier UPA govt. The corporate sector is essentially profit-oriented and is responsible for maximising profits for its shareholders. Hence, no private enterprise should be 'forced' to contribute to CSR activities. In fact, thousands of NGOs have sprung up in India due to govt's irresponsibility and inability to meet social welfare needs. As in the case of RTE thrust on private non-govt funded schools, 'forced' CSR is undesirable and should be discontinued forthwith.


In Reply to Sucheta Dalal 3 years ago

Firstly, sorry for offending you. My opinion on your article, as ridiculous as it may sound to you, was restricted to the fact that NGOs do not become the main and only means of CSR spending. You dont mention anything in that aspect in your reply though.
Coming to your reply now, without exciting your temper, a corporate is not any company who declares profit, irrespective of its size. You say irrespective of its size and then you quote a scenario of TV18 group which declared a net profit of 39.5 crore. The size of the company which is mandated to spend is DEFINED. Your confidence reflects the success of your business when you suggest me to try and run a business in India. I sincerely hope your company would come in that ambit.
If that is the sense prevailing then the CGR( Corporate Governance reporting) is also a big sham.
I also dont understand your point about the accountant, as a company is actually mandated to have all its reporting attested by a Chartered Accountant.
Your argument about extending the regular business practice towards social benefit is ideal. But tell me how is it different from what TV18 did when both the decisions are driven with a profit motive, or expansion motive or cost cutting motive.
Nobody is forcing anybody mam. The penalty which will be imposed will be much less than the 2 % to be spent, so the corporate can just pay off the penalty and move on. There arnt any 20-30 things given by the govt. There is a schedule(schedule 7) which only suggests the activities that one can take up. According to me, it is an opportunity for a corporate to build its brand, connect with not just shareholders but also the stakeholders present in the society which matters to a company once it reaches that stature. And if it comes as a mandate or a tax benefit then even better. But our argument, I guess, is the main dilemma in the situation. Passion and profit dont always go together.

Nagesh Kini

In Reply to Sucheta Dalal 3 years ago

I entirely agree. The scheme as its stands now is half-baked and extremely opaque and calls for a thorough overhaul. Best put it across for a full public debate and rewrite it de novo.

Nagesh Kini

3 years ago

The time has come to thoroughly revamp the entire NGO sector to weed out the thousands masquerading as do-gooders siphoning funds and cheating donors.
There has to be a simple mandatory registration-cum-monitoring process to replace the present multiple authorities like offices of the Charity Commissioner under a state act, the office of the Commissioner of Income Tax under the Union MOF and FCRA under MOH. The left hand doesn't know what the right is doing! Yet operating freely for years are many politically connected ones as 'social organisations'.


Suiketu Shah

In Reply to Nagesh Kini 3 years ago

Its an open secret lots of trusts and NGO's are to convert white into black(no charity etc whichi s all hogwash).The reason.Industrialists wish to avoid taxThis is why what Dr ASwamy states is 100% right.Just stop ITax,STax,excise-charge everyoen based on bank transaction tax.No ITax,no harassment,no 1000 companies by industrialists to avoid tax,no complication,no nothing.Only progress,progress and progress.Cynics wl say this wl encourage black money but black money already is a major component of the economy and this wl only come down.


3 years ago

I agree with Sucheta's analysis. As the study shows, lakhs of NGOs are simply for name sake. No mass based uplifting activities or quality inputs for down trodden is given by them. Lakhs of rupees which they receive as donations are used mainly for the trustee's own or their family /relative or friends benefits. Accounts can be fudged easily and they comply with the basic requirement of filing the 'Audited Accounts' which has become a financial jugglery for them .
Before the CSR benefits are extended to them, let here first be a Probe to expose what kind of 'Social activities they indulge in for splurging public money.

R Balakrishnan

3 years ago

Compulsory CSR is the refuge of a bankrupt and immoral government. Paying extortionist income taxes itself is more than enough give back to society. With enough indirect taxes, income taxes and CSR is a penalty for efficiency and enterprise.
Wonder if the Modi chap and his RSS team will have the courage to roll this back.

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