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FATCA & Global Tax Compliance

As an NRI, especially one with financial ties in India and potentially the U.S., it is essential to stay informed about global tax compliance requirements. One such critical regulation is the Foreign Account Tax Compliance Act (FATCA)—a U.S. law designed to prevent tax evasion by requiring disclosure of foreign financial accounts held by U.S. taxpayers.

While FATCA is a U.S. regulation, it has global implications. India has signed an agreement to enforce FATCA, making it relevant for NRIs who maintain financial assets in India, particularly if they are also U.S. persons.

Who Should Pay Attention to FATCA?

If you are an NRI and fall under any of the following categories, you may be affected by FATCA:

  • You are a U.S. citizen or passport holder
  • You are a green card holder
  • You meet the Substantial Presence Test for U.S. tax residency
  • You hold accounts jointly with someone who is a U.S. person
  • In these cases, your Indian financial accounts may be subject to reporting under FATCA, and you may have additional U.S. tax filing obligations.

India’s Role in FATCA Compliance

India’s agreement with the United States under FATCA mandates Indian financial institutions—banks, mutual funds, insurance companies, and NBFCs—to:

  • Identify accounts held by U.S. persons
  • Collect FATCA declarations from customers
  • Report relevant account information to the Indian tax authorities (CBDT), who forward it to the IRS

If you have opened a financial account in India since 2015—or are updating an existing one—you have likely been asked to fill out a FATCA/CRS self-declaration form. This is a standard compliance requirement.

What Is Required From You as an NRI?

If You Are a U.S. Person:

  • Submit FATCA self-declarations when requested by Indian institutions
  • Report all foreign financial accounts in your U.S. tax return, typically via Form 8938 (FATCA) and FBAR (if applicable)
  • Disclose income from Indian sources, including bank interest, dividends, rent, and capital gains—even if that income is exempt in India
  • File U.S. tax returns annually, regardless of whether you owe tax, if your income exceeds the filing threshold

If You Are Not a U.S. Person:

  • You are generally not required to report accounts to the IRS, but you must still submit FATCA declarations when requested
  • Ensure that the information provided in self-declarations is accurate and up to date
  • Stay informed about CRS (Common Reporting Standard) obligations, which apply to all tax residents of countries participating in the global information-sharing framework

Risks of Non-Compliance

  • Non-compliance with FATCA—whether intentional or due to lack of awareness—can have serious implications:
  • Your Indian financial institutions may freeze or restrict access to your accounts
  • Incorrect or missing FATCA status can delay investments or transactions
  • U.S. persons may face IRS penalties or audits for failing to disclose foreign assets

You may be subject to withholding tax on U.S. source income in certain cases

Key Recommendations

To avoid issues and ensure full compliance, consider the following best practices:

  1. Review your residency and citizenship status: Understand whether you qualify as a U.S. person for tax purposes.
  2. Keep your financial institutions updated: Ensure that your FATCA and CRS declarations are current and accurate.
  3. File required tax forms: If you’re a U.S. person, stay on top of U.S. tax filing obligations, including foreign account reporting.
  4. Retain documentation: Maintain copies of all account opening forms, declarations, and communication related to FATCA.
  5. Seek professional advice: Cross-border tax matters are complex. A qualified advisor can help you remain compliant in both jurisdictions and avoid unnecessary tax exposure.

FATCA vs CRS: Know the Difference

While FATCA is specific to U.S. taxpayers, the Common Reporting Standard (CRS) is a global framework for information exchange. Both are in effect in India and require disclosure of foreign assets and income based on tax residency.

  • FATCA: U.S.-specific, targets U.S. persons
  • CRS: Global, applies to tax residents of participating countries

Even if FATCA doesn’t apply to you, CRS might. Please consult a professional.

Conclusion

FATCA is not just a U.S. regulation—it’s a part of an evolving global effort to improve tax transparency and accountability. As an NRI, it’s essential that you:

  • Know your obligations
  • Make truthful disclosures
  • File taxes correctly in the jurisdictions where you are liable

Compliance today will protect you from complications tomorrow. If you are unsure about your FATCA status or reporting duties, consult a cross-border tax specialist to guide you.

Being informed is your best protection.