FATCA Declaration for Savings Accounts: What NRIs and PIOs Must Know
5 min read | 3 months ago
Have you heard of something called a FATCA declaration for savings accounts? While the term does sound complex, it is actually quite simple in reality. Demystifying the same is essential in order to help you understand what it actually means.
The Foreign Account Tax Compliance Act is a United States federal law, which mitigates the risk linked to tax avoidance. The purpose of this act is to ensure timely reporting about U.S. taxpayers’ profit with foreign financial accounts. FATCA requires foreign financial institutions (FFIs) to identify and report their U.S. account holders to the Internal Revenue Service (IRS). Indian banks also make it compulsory that all Non-Resident Indians and Persons of Indian Origin need to complete a FATCA declaration for their NRE and NRO savings accounts. Let us now look at the concept in more detail.
Understanding NRE and NRO Accounts
These are two types of accounts that NRIs and PIOs can open with Indian banks. NRE accounts are rupee-denominated and can be used to keep funds earned outside India. The Indian government does not tax the income earned from such funds. NRO bank account is an account where funds are earned in India and the income is taxed in this country itself. Both types of accounts are fully repatriable, meaning that the funds in the account can be safely moved to the account holder’s home country.
FATCA Declaration for NRIs and PIOs
The FATCA declaration is a particular form that must be submitted by NRIs and PIOs to their Indian banks according to the U.S. tax regulations. The form asks the account holder to provide their personal and financial data, such as their name, address, date of birth, and tax identification number, along with the account holder’s country of tax residence. The form serves the goal of preventing U.S. taxpayers from avoiding tax payments by transferring their income into foreign financial accounts.
All NRE and NRO accounts held by NRIs and PIOs require a FATCA declaration. Whether you have a NRE bank account for women or a zero balance bank account for senior citizens, you simply cannot skip the process. This form has to be given to the bank when opening the account, and then on an annual basis. Once the form is submitted, the bank will verify the information and transmit the personal data of the account holder to the tax authorities of India. They will, in turn, transfer the information to the IRS.
How to File FATCA Declaration
To file a FATCA declaration, NRIs and PIOs must provide certain documents to their bank, including a self-attested copy of their passport, proof of address, and tax identification number. The bank will verify the information provided and send the details to the Indian tax authorities. If the information provided on the form is incorrect or incomplete, the bank may reject the form and ask the account holder to resubmit the form with the correct information.
It is important to note that failure to file a FATCA declaration may result in an account being frozen or closed. Additionally, non-compliance with FATCA regulations may result in penalties and fines imposed by the IRS.
Impact of FATCA on NRE and NRO Accounts
FATCA has significant implications for NRIs and PIOs holding NRE and NRO accounts. Firstly, the account holder's personal and financial information will be shared with the Indian tax authorities and the IRS. This means that the account holder's tax information will be more closely scrutinized by both the Indian and U.S. tax authorities.
Not giving a FATCA declaration can have severe consequences for NRIs and PIOS. The Foreign Account Tax Compliance Act (FATCA) requires US taxpayers to report their foreign financial accounts and assets to the IRS. Failure to do so can result in hefty penalties, including massive fines. Additionally, non-compliant individuals may face difficulties in conducting financial transactions and accessing banking services as their accounts may be frozen as per the bank’s discretion.
Conclusion
In conclusion, the FATCA declaration for NRIs and PIOs is an important compliance requirement that must not be ignored if you fall in this category. Make sure you file a declaration with your Indian bank on an annual basis to comply with U.S. tax regulations. Failure to comply may result in penalties, fines, and account closures, which are avoidable consequences.
FAQs
1.What is the FATCA declaration for NRIs and PIO on NRE NRO savings accounts?
FATCA stands for Foreign Account Tax Compliance Act. It requires NRIs and PIOs to disclose their foreign accounts to the US government to avoid penalties.
2. Who needs to fill out a FATCA declaration for NRE NRO accounts?
Any NRI or PIO with a NRE or NRO account in India needs to fill out a FATCA declaration if they are a US citizen or resident or have US-sourced income.
3. What information is required for FATCA declaration for NRE NRO accounts?
The declaration requires personal information such as name, address, and tax ID number, as well as details about the foreign account, including account number and balance.
4. What happens if you don't fill out a FATCA declaration for your NRE NRO account?
Non-compliance with FATCA can result in penalties and legal action. Additionally, your bank may freeze your account until you provide the necessary documentation.
About Unity Small Finance Bank
Unity Small Finance Bank is committed to making banking simpler and more accessible for everyone. Our services include Savings Account, NRI account, Current Account, Fixed Deposits, and Personal Loans offering flexible tenures and attractive interest rates. We also offer financing options like MSME Loans and Microfinance to support businesses and underserved communities. Learn more about Unity Small Finance Bank here.
