Reserve Bank of India (RBI) has announced that Government of India India and US have reached an agreement in substance on the terms of an Inter-Governmental Agreement (IGA) to implement US-FATCA and India is now treated as having an IGA in effect from April 11, 2014. However, IGA would be signed only after the approval of Cabinet.
Indian Financial Institutions would have time upto December 31, 2014 to register with US authorities and obtain a Global Intermediary Identification Number (GIIN).
FATCA targets tax non-compliance by U.S. taxpayers with foreign accounts. FATCA focuses on reporting by U.S. taxpayers about certain foreign financial accounts and offshore assets, as well as by foreign financial institutions (FFIs) about financial accounts held by U.S. taxpayers or foreign entities in which U.S. taxpayers hold a substantial ownership interest.
Unless exempt, FFIs that do not both register and agree to report face a 30% withholding tax on certain U.S.-source payments made to them. Under FATCA, to avoid being withheld upon, foreign financial institutions (FFIs) may register with the IRS and agree to report to the IRS certain information about their U.S. accounts, including accounts of certain foreign entities with substantial U.S. owners. FFIs that enter into an agreement with the IRS to report on their account holders may be required to withhold 30% on certain payments to foreign payees if such payees do not comply with FATCA.