FATCA & CRS in India: Purpose, Process, and Reporting Explained

Why Needs for FATCA and CRS arrived:

The use of offshore financial accounts for tax evasion and avoidance is a pressing concern for governments all around the world. There is an international consensus that the domestic measures taken to address this problem must be supplemented by enhanced cooperation amongst governments including exchange of tax information on automatic basis.

Hence for implementation of the same in India, India have signed agreements for reporting of FATCA (USA reportable account) and CRS (other countries reportable accounts) accounts to collect and provide relevant information to the foreign tax authorities.

Overview of the reporting under FATCA & CRS

a. Who is required to report?

b. What is required to be reported?

c. What is the format and timeline for reporting?

1. Reporting Financial Institutions (RFI) must review their
2. Financial Accounts to identify
3. Reportable Accounts by applying
4. Due diligence rules and then
5. Report the relevant information in respect of identified Reportable Accounts in Form 61B.

1. Only Entities resident in India can be RFIs which is classified in four different categories.

Custodial Institutions (CSDL and NSDL)

Depository Institutions, (accepts deposits in the ordinary course of a banking or similar business)

Investment Entities, (portfolio management)

Specified Insurance Companies. (Payment wrt Cash Value Insurance Contract or an Annuity Contract)

• RFIs are required to review the Financial Accounts maintained by them and to identify whether any of Financial Accounts is held by a Reportable Person. Wherever account is held by a Reportable Person, such account becomes Reportable Account.

• Reportable Account means an account, which has been identified pursuant to the due diligence procedure, as held by (a) a reportable person; or (b) an entity, not based in United States of America, with one or more controlling persons that is a specified U.S. person;

There are two types of reportable person. First one has been defined specifically for USA and second one is for the other countries.

U.S. Person means a) an individual, being a citizen or resident of the United States of America; b) partnership or corporation organized under the laws of USA c) trust if one or more U.S. persons have the authority to control all substantial decisions of the trust.

• There are different due diligence procedures for the accounts held by individuals and accounts held by entities. There is a further classification of accounts as ‘Preexisting accounts’ and ‘New Accounts’.

Pre-existing account means a financial account maintained by a RFI

1. in case of a U.S. reportable account, as on the 30 June, 2014; and  
2. in case of other reportable account, as on the 31 December 2015

New account means a financial account maintained by a RFI opened on or after,

1.  in case of a U.S. reportable account, the 1 July, 2014; and
2.  in case of other reportable account, the 1 January, 2016

The due diligence procedure is also dependent on balance/value of the financial account. On the basis of balance/value, accounts are also classified High value and Lower value accounts as charted below:

FOR FATCA-US

FOR CRS-Other Countries

Thus, it can be seen that while there is threshold account balance below which preexisting individual accounts are not required to be reviewed and reported under FATCA, there is no such threshold for CRS.

For purposes of determining the aggregate balance or value of financial accounts held by an individual or entity, a reporting financial institution shall be required to take into account all financial accounts which are maintained by it, or by a related entity.

REPORTING REQUIREMENTS

After the RFI has identified the reportable accounts, RFI needs to report specific information in respect of each reportable account. As per Rule 114G(1), RFI needs to maintain and report the following information in case of each Reportable Account.

Information as per Format of 61B reporting requirements.

Timelines for Reporting of Form 61B

FORM 61B is to be reported for every calendar year ending 31^st December.

Due date for reporting of return is 31^st May following the calendar year.

Thus, for example, if you hold reportable accounts during the calendar year 2024, then the due date for filing Form 61B is 31st May 2025.