The Finance Ministry on Wednesday said that banks and financial institutions need not enforce “closure” of accounts by August 31, 2016 in respect of those cases where “self-certification” had not been obtained and due-diligence not completed.
The revised timeline for completing due diligence in respect of such accounts would be notified in due course, an official release said.
The inter-governmental agreement (IGA) with USA for implementation of FATCA entered into force on August 31, 2015. The IGA was signed to implement FATCA with a view to promote transparency between the two countries on tax matters. This was seen as an important step on part of India and the US to tackle offshore tax evasion and avoidance.
As per the IGA, Financial institutions in India will be required to report tax related information relating to U.S. account holders directly to the Indian Government, which will, in turn, relay that information to the USA.
Under the alternative procedure prescribed in the Indian income tax rules, banks and financial institutions needed to obtain self-certification in respect of all individual and entity accounts opened from July 1, 2014 to August 31, 2015.
This was required to be completed by August 31, 2016 - one year after FATCA entering into force -- failing which accounts are required to be closed and report the same if found to be a “reportable account”.
Now, with stakeholders expressing difficulties in following the provision for “closure” of financial accounts, the Finance Ministry has said that financial institutions may not close the accounts by August 31.
In the interim, the financial institutions should continue to work on completing the required due diligence, including obtaining self certification, the release added.
Aseem Chawla, Managing Partner, ASC Legal, a law firm, said that the announcement comes as a welcome respite and does recognise that sufficient time and enabling environment would yield better compliances in the long run.
Pranay Bhatia, Partner – Direct Tax, BDO India, said that the financial institutions have received much awaited relief from closing down the accounts opened between July 1 2014 to August 31, 2015 for which self certifications were not obtained.
Finance Ministry will now provide an extended timeline to complete the due diligence process for these accounts. “Financial institutions also expect that the new notification shall provide for freezing or blocking such accounts instead of closing the accounts, which will bring in operational ease”, Bhatia told BusinessLine.