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The American government has extended a deadline for India and some other countries by a month to sign an agreement under its Foreign Account Tax Compliance Act (Fatca), which seeks to facilitate the flow of financial information.
The initial deadline set by the US for signing was December 31. Failing to do so would draw a 30 per cent withholding tax on payments sourced from the US to India's financial institutions.
Revenue Secretary Shaktikanta Das said the finance ministry would seek Cabinet approval for signing. Under Fatca, the US is to sign an Inter-governmental Agreement (IGA) for sharing of information with various countries, including India, where American individuals and companies have accounts and other assets.
Fatca aims at tracking investments made by US citizens outside the US and bring this under the US tax net. Financial institutions, such as mutual funds, receiving money from US investors will have to make extensive disclosures about the investors and investments to US tax authorities.
Exchange of information between the countries will be subject to a confidentiality clause. The US treasury had released two formats of the IGA-Model 1 and Model 2. In Model 2, financial institutions will report information directly to the US Internal Revenue Service, rather than their local jurisdictions.
India comes under Model 1. This meant entities will have to give information to their regulators, which will provide it to the Central Board of Direct Taxes (CBDT). Later, the government will give all the information put together to its US counterpart.
Recently, referring to Fatca, Finance Minister Arun Jaitley had said the Reserve Bank had cautioned the government of serious consequences in case India did not comply with this American legislation. It would, he'd said, negate the efforts being undertaken to revive the Indian economy.
