India, US sign pact on sharing account info

In what could prove to be a significant step towards combating tax evasion and black money, India and the US have inked an inter-governmental agreement to implement the Foreign Account Tax Compliance Act (FATCA). The agreement will make it obligatory for the two countries to exchange offshore accounts information of each other’s citizens.

US Ambassador to India Richard R Verma and Revenue Secretary Shaktikanta Das signed the agreement in New Delhi on July 9. Speaking at the signing ceremony, Mr. Das said, “Signing the agreement with the US to implement FATCA is a very important step to tackle offshore tax evasion. It is hoped that the exchange of information on an automatic basis would deter tax offenders.”

The FATCA, which is scheduled to kick off on September 30, envisages an automatic exchange of information on tax offenders. Under this, the US’ foreign financial institutions will provide information about Indian account holders to the country’s Internal Revenue Service (IRS), who will forward the information to the Indian government. In exchange, the Indian government will provide similar information to the IRS.

In December last year, the Indian government had allowed the Special Investigation Team (SIT) on black money to sign international treaties, which had until then stopped India from agreeing to FATCA, including confidentiality clauses.

Later, India joined 59 other countries on the Automatic Exchange of Financial Account Information. The agreement obliges signatories to exchange financial information automatically.

Under this agreement, financial institutions which are caught violating, will face a 30 per cent withholding tax from the United States.