Tips for NRI’s to become compliant with FATCA and the IRS
The first step towards becoming compliant to any norm is to be aware of what it is. FATCA or Foreign Account Tax Compliance Act came into existence some years ago to counter tax evasion by taxpayers.
As per the tax code, any individual who is a resident of the USA is a green card holder or a citizen of the USA, must pay taxes. To extend it further, taxpayers need to declare their global income and pay appropriate taxes on the same.
There are quite a few high-profile tax evasions in the past, which forced the IRS to take corrective measures.
Approaches of FATCA
There are two primary approaches that FATCA takes. Firstly, it expects US taxpayers to provide details of their foreign income. If they own any kind of assets outside the USA, they must report them to the IRS. By filing Form 8938, you can provide all the necessary details to the IRS.
The second approach involves foreign financial institutions providing information regarding assets of individuals. The institutions need to provide information regarding financial accounts, the assets or accounts that individuals hold in different countries.
How to get FATCA Compliance
You must do the following steps to be compliant with FATCA.
– A simple declaration that mentions your PAN details.
– The country of your birth.
– The country of your current residence.
– Your nationality.
– Your current occupation.
– Your annual income.
– And whether or not you are a politically exposed individual or not.
– For individuals who have paid taxes in any part of India, they need to provide a tax identification number.
What should be reported
The following are certain conditions in which an NRI needs to report their earnings as per FATCA to the IRS. Financial institutions also need to report the same to the IRS as well.
– If the total value of the income is less than $50,000 at the end of the fiscal year, there is no need to report the same. However, if the amount has exceeded $75,000 at any point in the year, the amount must be reported to the IRS.
– The above threshold is for individuals staying in the USA. For the ones who stay outside of the USA, the threshold values are even higher.
– The threshold levels differ for single tax filers and married tax filers as well.
– This declaration of income includes mutual funds and other financial accounts.
Outcomes of Non-compliance
The consequences of non-compliance of FATCA differs depending on the account types. You might have to face any of the following, depending on the kind of holdings.
– Bank Account
The IRS had offered a deadline of 30thApril 2017 to present a self-signed certificate. In the event of failure of presenting the same, the accounts would be frozen.
In simple words, the financial institution would forbid the account holder from making any financial transactions.
– Mutual Fund Investors
A similar deadline was introduced for mutual fund accounts as well. As is the case with the bank accounts, the mutual fund accounts would also be blocked if they are non-compliant with FATCA. Being blocked doesn’t allow individuals to do any sort of transactions on the accounts.
NPS account holders also need to get the FATCA compliance done. The lack of which will deem their accounts blocked.
You need to download the form and self-sign it and send the same to NSDL-CRA to get the certification done.
The IRS is quite serious when it comes to tax evasion. If your financial accounts aren’t already FATCA compliant, it is high time you get them done.