With new markets emerging each day in this era of globalisation, governments and financial institutions around the world are coming up with ways to combat tax evasion. FATCA and CRS are two such initiatives. We have covered the following in this article.

  1. What is the difference between FATCA & CRS?
  2. Foreign Account Tax Compliance Act or FATCA
  3. Agreement to implement FATCA between India & US
  4. More About FATCA Declaration
  5. Common Reporting Standard or CRS
  6. CRS Declaration
  7. What are the documents required for FATCA & CRS declarations?
 

1. Difference between FATCA & CRS at a glance

The need for a system to validate and improve tax compliance globally has led to the formation of FATCA and CRS. Before talking about FATCA-CRS compliance, let us understand the difference between the two below:

a. FATCA

The United States Tax Department launched FATCA in the year 2010 to promote tax compliance and discourage tax evasion. FACTA stands for Foreign Account Tax Compliance Act.

b. CRS

On the other hand, CRS is roughly a more international version of FATCA. While the former is only for US persons, the latter is applicable for citizens of every registered country.

FATCA

CRS

Needs the help of a financial institution to find US persons CRS has 90 countries (except the US) committed to it – has a wider scope
It is not compulsory to report on financial accounts always Reporting your financial accounts is mandatory under CRS
Individual account should have more than $50,000 balance No de minimis limit under CRS
Number of US people reported under FATCA are only a few thousands Several millions of accounts are reported under CRS
 

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  Therefore, both FATCA and CRS prevent offshore investors from avoiding taxes and hoarding unaccounted cash overseas. However, it required cooperation from the tax authorities from all the G20 and OECD countries. Finally, the Common Reporting Standard or CRS was introduced.

2. Foreign Account Tax Compliance Act

FATCA came into existence to fight tax evasion and to ensure strict adherence to tax rules. Its main objective is to identify and prevent offshore tax avoidance by US citizens or residents. In short, an attempt to track US persons earning from overseas investments and stash assets in other countries! FATCA enables financial institutions to withhold tax if the US persons refuse to meet the documentation requirements. For this, all financial institutions registered under this Act should immediately notify the US tax department when they come across US persons attempting to evade tax. Hence, all FATCA-registered banks report such account holders (with the available information) immediately. This Act has a direct and profound impact on US multinationals and Foreign Financial Institutions.  

3. US-India agreement to implement FATCA 

FATCA ensures tax compliance and transformation at a global level. It presents foreign financial institutions a chance to improve and streamline their tax reporting process. It also gives them visibility in the foreign country and gains the trust of investors. To accommodate FATCA, the government had inserted Rules 114F to 114H and Form 61B in the Income Tax Act in 2014. The Indian Government also signed the Inter-Governmental Agreement (IGA) with the United States of America in the year 2015 for the implementation of FATCA. According to the agreement, Indian tax officials are required to obtain specific account information from US investors. The goal was to ensure tax compliance by the US citizens while increasing transparency for their Internal Revenue Service (IRS). This gave a legal basis for the Reporting Financial Institutions to maintain and report personal and income details.  

4. FATCA declaration for NRIs

Effective from January 2016, they made it mandatory for all Indian and NRI investors (existing and new) to file a FATCA self-declaration. While the details might be slightly different with each financial institution, the standard information they mandate are:  

a. Name

b. Permanent Account Number (PAN)

c. Address

d. Place (city/state) of birth

e. Country of birth

f. Nationality

g. Gross Annual Income

h. Occupation

i. Whether the resident of another country? If yes, then the country of residence, Tax ID number, and type

The declaration asks explicitly to include the USA as a country of residence if you are a US citizen or a green cardholder. This holds even if you have moved to India and are now an Indian resident. Further, this declaration specifies that the Central Board of Direct Taxes (CBDT) has already covered this issuance in the rules 114F-114H. As a result, the tax authorities will have access to all relevant information. Therefore, please intimate the respective financial institution within 30 days in case of any change in the above information. Income Tax Act

5. Common Reporting Standard or CRS

The Organisation for Economic Cooperation and Development (OECD) developed the Common Reporting Standard (CRS) for Automatic Exchange of Information (AEoI). CRS mandates financial institutions across countries to provide respective tax authorities information about their citizens and their wealth overseas. This can help governments in obtaining information about the financial assets held by its citizens internationally – for tax reasons. Till now, more than 90 countries have agreed to follow this global standard. India too has signed a multilateral agreement to transfer personal and account information of another country’s citizen to their respective tax authority. Article 6 of the Convention on Mutual Administrative Assistance in Tax Matters under the CRS rules refers to this.  

6. CRS Declaration

Most of the details mandated under CRS self-declaration are similar to that of FATCA. However, CRS covers taxpayers from over 90 countries, as opposed to FATCA, which is applicable only for the US taxpayers. You can download the CRS self-declaration form from any offshore mutual fund website. Alternatively, you may also visit the fund house service centres or the Asset Management Company (AMC) office. Submit the self-declaration either online or offline at any of the fund company branches. For instance, Registrar and Transfer Agencies such as CAMS offer this service. To complete the registration, you will be required to enter the OTP, generated using your PAN number. CRS declaration is nothing but an extension of the Know Your Customer (KYC) documents.  

7. Documents for FATCA & CRS declarations 

All foreign financial institutions in India mandates US persons to submit the following documents:

a. PAN Card

b. Passport

c. Government-issued IDs like Voters ID or Aadhaar  

The Government of India will identify the investor as a resident or an NRI on this declaration. Central Board of Direct Taxes (CBDT) will release notifications for all NRI investors on the necessary information. Tax-evasion is not a problem unique to one country. Therefore, the solutions should be at a global level. The focus is more on the global transparency and consistency of compliance among the registered nations. In essence, FATCA and CRS have indeed gone a long way in reducing tax evasions and non-compliance globally in recent years. Therefore, US individuals, including NRI investors, should be aware of these regulations, especially if they are planning to invest in offshore funds.  

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FAQs (Frequently asked Questions)

As a tax-paying citizen, the Section-80c of the Indian Tax Act allows you some breather –
a deduction of up to 150,000 from your total annual income.
  • How to check your KYC status online?
    You may consider completing your KYC (Know Your Customer) before investing in mutual funds. You may have to submit documents such as PAN as an identity proof and your passport/driving license/Aadhaar/Voter ID as an address proof. You must submit self-attested copies of all these documents along with a couple of passport size photographs and show the originals for verification during IPV (In-Person Verification).

    Complete KYC Online: You could complete the KYC online by visiting the website of a mutual fund house or KRA (KYC Registration Agency). You may consider filling up your details in the KYC form. You would be asked to upload self-attested copies of identity and address proof along with a passport size photograph. You must display originals for verification during IPV.

    Check KYC Online: You may verify KYC status by visiting the website of the KRA. You will have to enter your PAN details to check the status of KYC.
  • How to check bank account KYC status?
    You may consider visiting the website of your bank. You may find the link ‘Check KYC status’. You then enter the bank account number and the CAPTCHA to check the KYC status of your bank account. You may also log in to your internet banking account and check the bank account KYC status.
  • How to update KYC online?
    You may want to change your name or permanent address in the digital KYC records. You would have to visit the eKYC portal of the KRA and login with your credentials. You then click on the link ‘‘Update KYC’. You then fill up the new details and upload the scanned copies of the relevant documents. You will have to complete the verification using the OTP on your registered mobile number. You then click on submit to complete the updation of KYC online.
  • What is KYC status?
    KYC also called Know Your Customer is a method of identifying and verifying customers of a bank or investors in stocks, mutual funds and other investments. It is compulsory as per RBI norms for customers to complete KYC before accessing services or making transactions at banks.

    You may consider KYC to be a protection against money laundering. It signifies that you are compliant with the Prevention of Money Laundering Act, 2002. You may find KYC status to be KYC Registered, KYC Under Process, KYC On-Hold, KYC Rejected and Not Available or your KYC record is not available with KRAs.
  • How to check director KYC status?
    All current directors must update details as per the Income Tax Database. You may visit the MCA Portal to access the website mca.gov.in. You may enter the DIN (Director Identification Number) and click on submit. You then enter the PAN (Director) and click on submit to check director KYC status.
  • How to check KYC DIN status?
    You may visit the MCA Portal. You then click on verify DIN PAN details of the Director and enter the DIN. You then press submit to check the KYC DIN status.
  • How to check KYC status of PAN Card?
    You may consider visiting the website of CDSL (Central Depository Services Limited) and entering your PAN. If your KYC verification is complete you will see the updated status as MF-Verified by CVLMF. However, if your KYC status has not been verified you get to see status ‘Pending’. You may consider taking a print out of the page if necessary.
  • How to check the KYC status of mutual funds?
    You may check the status of KYC at the website of the KRA (KYC Registration Agency). You then enter your PAN and the Captcha code to check the KYC status of mutual funds. However, if you have completed the KYC status without PAN you may enter your name, DOB and PAN-exempt category along with Captcha code to check the KYC status of mutual funds.

    After your details are validated the portal will show you the date of initial KYC registration, the date of modification of your KYC records and the checkbox of IPV verification. You get to know the status of IPV verification through the checkbox.
  • How to check the KYC status of EPF?
    You may check the KYC status of EPF using your UAN. You may visit the member e-sewa portal and login to your account using your credentials. You then click on the ‘View’ tab and the ‘UAN Card’ option.

    The UAN Card will display ‘Yes’ in the KYC information row if your KYC details are updated in the EPF account.
  • How to check Aadhaar eKYC status?
    You may visit the website of the financial entity which offers Aadhaar based KYC and login with your credentials. You enter your Aadhaar number to check the Aadhaar eKYC status.
  • How to verify KYC status in MCA?
    • You may consider visiting the MCA Portal. You then navigate to MCA Services> DIN Services> Verify DIN.
    • You could enter the DIN of the Director and click on the Submit button.
    • You may enter the DIN in the box below verify DIN/DPIN-PAN details of the Director under DIN Services.
    • You then enter the PAN of the Director and click on the ‘Submit’ button.
    • You would see the name of the Director displayed as per the DIN database and the message, DIN details are matching with the Income Tax PAN database.
  • How to check CVL KYC status?
    You may verify your KYC status by visiting the CVL KYC website and clicking on the button ‘Inquire on KYC’ after logging with your credentials. You will need to enter the Aadhaar Number to check the present status of your Aadhaar Based KYC Registration. You may consider repeating the same procedure for PAN-based registration. However, you may enter the PAN number instead of Aadhaar through this method.
  • How to check UAN KYC status?
    You may consider checking the EPF KYC status using your UAN card. You must visit the e-Sewa Portal and login to your account with the right credentials. You then navigate to the ‘View’ tab and click on the ‘UAN card’ option.

    You will find the UAN Card showing ‘Yes’ before the KYC information row if all your KYC details have been updated in the EPF account.
  • How to check Central KYC Status?
    You may visit the KRA website which offers the facility to check the CKYC status. You may consider entering your PAN details. You enter the Captcha Code to check the Central KYC Status.

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