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Responding to FATCA Notice and Common Misconceptions

The dream of going abroad and earning in dollars is a dream of many in India; a dream which a reality for many today.  NRI’s, many of whom have traveled abroad and earned in dollars have been able to save, invest and build assets across borders.  While, there is no harm in expanding your financial portfolio, many may have inadvertently broken tax laws.  Additionally, the rules and laws that did exist was not something that everybody was aware of, nor strictly enforced, which is why the emergence of FATCA in 2014 sent many into panic and misconceptions started brewing around the controversial “FATCA” notice.

What is FATCA?

The Foreign Account Tax Compliance Act (FATCA) is an international tax law, enforced by the Internal Revenue Service(IRS) of the USA, for US taxpayers evading taxes.  Many countries and Foreign Financial Institutions (FFI) have signed the agreement, including India, who entered into the agreement on July 1st 2014, thereby creating controversy and unrest among many NRI’s and Foreign Nationals.  FATCA’S main objective is to determine US residents and US Persons total asset value for tax purposes.

Misconceptions About FATCA

In today’s global and borderless economy, many Indians work abroad and vice versa, India is home to many Foreign Nationals.  This group has maintained accounts and assets and not declared them to their home country or residing country.  This non-reporting of accounts and assets was not, in common cases, intentionally malicious, but rather due to ignorance of the laws.  The most common misconception held, which leads to the un-intentional tax evasion, is about a person’s residential status:

  • A foreigner is a non-resident
  • A Indian living/working abroad is a non-resident of that country
  • An OCI card holder is a Indian citizen and a resident, even if living abroad
  • An American citizen living in India is not a US resident
  • Non-residents can have accounts and assets as a resident

Response to FATCA Notice

How to respond to FATCA notice and to not ignore the notice

Firstly, if you are the recipient of a FATCA notice, do not panic and do not ignore it.  Receiving the notice does not automatically mean you are evading taxes.  So, first, declare the information requested, which will be:

  1. Residential status of the year under question
  2. Tax return details for the past three years
  3. Explanation for reported and non-reporting of foreign accounts and assets
  4. Clarification on tax exempt claim amounts in India.

U.S Tax Filing from India

Ignoring the notice can cost you more than just money.  Under the Black Money Act, all undeclared foreign assets and income will be taxed at 30%, with penalties of up to 300%. Moreover, the chances of criminal prosecution also exist.  So, if you feel an error has been made or are unsure of how to respond, contact a tax expert or CA and declare all assets and income, as it is much wiser and safe to do so.

Annalakshmi Ekambaram
Annalakshmi Ekambaram
Annalakshmi is a content writer at H&R Block India. She enjoys writing about Income Taxes in a simplified manner so that everybody can easily understand it.

1 Comment

  1. Peter Szuszkiewicz says:

    Dear Ms. Ekambaram,

    thank you for the article. I am a FATCA and CRS professional in Austria and it is always interesting for me to read about FATCA and CRS in other countries. I have some questions on some points in your article.

    Firstly, what is a FATCA notice? Is this a notice issued by the Indian Department of Revenue or by the IRS? Unfortunately I could not open the link provided by Alissa in her comment because the security walls of our system see a problem with the certificate of that site.

    Secondly, regarding your list of misconceptions about FATCA:
    •A foreigner is a non-resident
    – Yes, if residency is the criterion for being a foreigner or not. In my experience, a foreigner for FATCA purposes is someone who does not live in the USA AND is not a US citizen. A US citizen is never a (US) foreigner for FATCA, because these people are always taxable in and reportable to the USA, irrespective of where they live.
    •A Indian living/working abroad is a non-resident of that country
    – Does India always regard its citizens as residents of India? Normally you are resident in the country where you live, irrespective of your citizenship.
    •An OCI card holder is a Indian citizen and a resident, even if living abroad
    – Does India tax its citizens worldwide, as though they were actually living in India, even if they might in reality live quite somewhere else? So far, I thought only two countries did that, the USA (which is what makes FATCA more of a challenge than the CRS) and Eritrea.
    •An American citizen living in India is not a US resident
    – This is certainly true from an immigration standpoint. But for purposes of FATCA, a US citizen is always a US tax resident, is a “US person”, is taxable in and reportable to the US, albeit actually living in India, or anywhere else outside the USA for that matter. But of course, this person is also (and primarily) a resident of India and taxable in and reportable to (CRS) India as well (with accounts held in a CRS country other than India). So, if a US citizen living in India held an account at my bank in Austria, I would classify him as resident of India and report him there under CRS and as a US person and report him there under FATCA. This would also apply to an account held by this person in India, except that there may be no report to India within India.

    Thank you in advance for your reply.

    Kind regards
    Pete Szuszkiewicz

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