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.
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.
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:
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:
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.