KYC and FATCA/ CRS Declarations

Foreign Account Tax Compliance Act (FATCA) and Common Reporting Standard (CRS) play a crucial role in aiding governments to understand better your financial assets held abroad.

If you reside in the US region, filing FATCA is necessary if your earnings exceed the $50,000 threshold.

And failing to comply with the FATCA requirements can lead to 30% withholding tax on certain payments from the US. These payments include rent, royalties, dividend, interest and such other income notified by the US government.

On the other hand, there is CRS which is expanding its presence rapidly across the globe to prevent tax evasions.

Moreover, self-declaration of FATCA/CRS is an extension to the KYC form that helps the tax authorities in India to identify you as an NRI.

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What Is FATCA? 

FATCA stands for Foreign Account Tax Compliance Act, is a US provision launched in March 2010.

FATCA targets US taxpayers including NRIs residing in the US, indulging in transactions with foreign financial institutions.

If you plan to invest in India then certain foreign financial institutes in India viz mutual funds mandates you to self-declare by filing FATCA.

The intention behind launching FATCA was to ensure that you’re disclosing your foreign investments to the US Internal Revenue Service.

The signed agreement between countries like India & USA requires tax authorities to share your investments and tax information with the US IRS.

Also, the signed agreement aims to improve international tax compliance between countries involved and implementation of FATCA in India.

Here, the foreign financial entities (banks, mutual funds) & tax authorities where you invest are responsible for reporting your foreign income.

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Who is a US person?

For an individual to qualify as a US person, he/she must be a ‘citizen or resident or green card holder of the USA.’

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What Is CRS? 

The Organization of Economic Development (OECD) along with the members of the G20 (includes India) developed the Common Reporting Standard (CRS).

The CRS aims to combat any offshore tax evasion including stashing and avoidance of unaccounted money abroad.

CRS requires the foreign financial institutions (you plan to invest) to collect & report your account holding information to tax authorities.

And, tax authorities ‘Automatic Exchange of Information (AEOI)’ are responsible to automatically (annually) transmit information to other countries.

To assist CRS, the Income tax Act,1961 amended Sec 285BA & Income tax Rules inserted Rules 114F-114H & Form 61B.

The above assistance aids the Reporting Financial Institutions (RFIs) to report any info regarding your reportable accounts. 

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Purpose of FATCA/CRS

If you are a US taxpayer exploring investment opportunities outside the US then FATCA declaration is a must.

Earlier, a good number of US taxpayers used to invest abroad to avoid paying taxes in the US.

Hence, the Government of the USA introduced FATCA thereby mandating the foreign financial institutions in other countries to report information.

For instance, to ensure that the financial institutions present in India share the requisite information, India-US signed an Inter-governmental Agreement.

On the other hand, CRS aimed to automate the exchange of your account holding information held in foreign jurisdictions.

Also, the purpose behind CRS includes preventing tax evasion on the funds parked overseas.

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Documents For FATCA/CRS Declarations

As an NRI residing in the US or any other country, you need to submit the following documents for the purpose of FATCA/CRS declaration,

• PAN Card,
• Passport,
• Certificate of residence issued by the authorized government 
• Voter ID (or)
• Aadhaar Card  (or)
• Driving License (or)
• Govt Issued ID Card

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Difference Between FATCA and CRS

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Conclusion

FATCA and CRS motives align, yet they remain two distinct setups formed by the US and OECD models.

The financial institutions in India must submit any investment info of the US persons to the tax authorities in India who then transmits it to the US government.

On the other hand, CRS involves the G20, the BRICS and other countries totalling to 123 countries that plan to combat tax evasion.

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KYC and FATCA/ CRS Declarations: Frequently Asked Questions (FAQs)

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Is FATCA mandatory for mutual funds?

Yes, FATCA is mandatory while investing in Indian mutual funds as it is helpful in determining your tax residential status.

The SEBI vide circular dated 20th of Feb 2024, mandates the KRAs to obtain a self-certification from the investors.

The above circular is effective from 1st of August 2024 the KYC Registration Agencies (KYC) like KARVY, CAMS, etc., 

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Is every investor required to submit a FATCA/CRS declaration?

Yes, irrespective of your residential status, you must submit your FATCA/CRS self-declaration.

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Who needs to submit FATCA?

As an NRI residing in the US region, you are responsible to report your investments held abroad by filling-out FATCA form 8938 available on IRS web-portal.

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Can I update my FATCA online?

For the purpose of Indian mutual funds, you can update FATCA/CRS declaration by visiting the CAMS-KRA web-portal.

Once you visit the CAMS-KRA web-portal, the next step is to enter details such as PAN, DOB and mutual fund name.

Updating your KYC details with one mutual fund is enough for updating details across participating funds.

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Are the FATCA & CRS agreements signed by India?

Yes, India is a signatory to the FATCA’s Inter-governmental Agreement (IGA) and the CRS agreement.

The FATCA includes India and the US as parties.

India is one among the G20 countries, hence, India committed itself to be an early adopter of the CRS.

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Who will be covered under the purview of the FATCA & CRS?

You will fall under the purview of FATCA, if you are a citizen or resident or green card holder with investments held abroad.

CRS is for account holders or beneficial owners, who remain tax residents of any of the signatory countries.

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Is India a CRS country?

Yes, India along with 122 other countries, is a signatory to the CRS - Multilateral Competent Authority Agreement.