India, US sign agreement to share info on tax evasion

India and the US on Thursday signed a tax information sharing agreement under a new US law, Foreign Account Tax Compliance Act (FATCA), that will bolster efforts towards automatic exchange of financial information between the two nations about tax evaders. 

The agreement will cover automatic sharing of information on bank accounts as well as financial products like equities, mutual funds and insurance and is aimed at fighting the menace of black money stashed abroad. Coming within months of India becoming a signatory to the OECD pact on automatic information sharing, the government's efforts at getting names of those with illicit wealth stashed abroad will get a leg up Stock Market Trading Tips

With the agreement in palace, from September 30, banks, mutual funds, insurance, pension and stock-broking firms will report their Indian client details to the United States which will be shared with authorities here. It was delayed due to observations made by the Supreme Court earlier as in absence of the pact, all remittances to India would have faced a 30% withholding tax, impacting inflows to exporters as well as households. 

"We as a country see it as a great breakthrough and significant development in India-US cooperation in handling offshore tax evasion which also impacts money laundering and other aspects which we call in India the problem of black money," revenue secretary Shaktikanta Das said. US has so far signed pacts with 110 tax jurisdictions to implement FATCA Personal Numerology

FATCA, along with the Automatic Exchange of Information (AEOI) agreement, which will come into play from 2017, "will ensure that all the tax related information, all the financial information are available with us from 2017," he said. 

Tax experts said that the agreements may result in more burden on financial entities and may result in some modifications to the KYC requirements. "FATCA creates a new compliance burden on the Indian financial institutions. With FATCA and common reporting standards (under OECD pact), they will be required to be geared up to exchange tax information of more than 60 countries. This calls for changes to customer on-boarding documents, systems, processes and reporting compliances. Fresh Capital Flows into equity and debt markets, with most countries now sharing information and subject to other commercial factors, may depend upon the tax exemptions given in source country and the total tax outflow for the investor," said Bahroze Kamdin, partner at consulting firm Deloitte Haskins & Sells Share Market Astrology
"We are expecting detailed guidelines to be issued soon by the finance ministry... it will have an impact on KYC requirements for financial institutions and also require them to provide additional reports," added Basant Shroff, partner at EY India.