FATCA Explained
If you’re a Non-Resident Indian (NRI) living abroad—especially in the U.S.—you may have come across the term FATCA in financial paperwork or bank forms. But what is FATCA, and why does it matter?
FATCA stands for the Foreign Account Tax Compliance Act, a U.S. law enacted in 2010 to combat offshore tax evasion. It requires U.S. taxpayers (including those living abroad) to report their foreign financial accounts. In parallel, it mandates foreign financial institutions to report information about accounts held by U.S. taxpayers to the Internal Revenue Service (IRS).
Who is impacted by FATCA?
If you’re:
A U.S. citizen or Green Card holder
An NRI with U.S. tax obligations
Holding bank accounts, mutual funds, or insurance products outside the U.S.
Then FATCA likely applies to you. This includes:
NRIs with NRE/NRO accounts in India
U.S.-based individuals investing in Indian mutual funds or insurance
Dual citizens and overseas citizens of India (OCI) with ties to the U.S. tax system
What does FATCA require?
Self-declaration: You must submit a FATCA declaration when opening or maintaining financial accounts in India (e.g., with banks or mutual fund houses).
Reporting: Foreign Financial Institutions (FFIs) in India are required to report details of your account—such as balance, transactions, and account ownership—to Indian tax authorities, who then share it with the IRS under an intergovernmental agreement.
Compliance at every step: Whether you’re opening a bank account or investing in a mutual fund, FATCA compliance is a mandatory checkpoint.
Why FATCA matters
No FATCA, no service: In many cases, if you don’t submit a FATCA declaration, your account can be frozen or new investments blocked.
It’s not about double taxation: FATCA doesn’t mean you’ll be taxed twice. It simply ensures transparency and tax compliance between countries.
Data sharing between governments: FATCA has paved the way for global cooperation on tax matters. India and the U.S. have a bilateral agreement under which financial information is exchanged.
How to stay compliant
Submit your FATCA declaration to your bank or fund house.
Keep your U.S. tax ID (SSN or ITIN) ready when filling forms.
Inform financial institutions if your residency or tax status changes.
Final Thoughts
FATCA is about transparency, not punishment. Understanding your obligations under it is critical for avoiding disruptions in financial transactions and staying compliant with global tax laws. If you’re unsure of your FATCA status, consult with a tax advisor who specializes in U.S.-India cross-border taxation. It’s always better to stay informed than face complications later.
