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CBDT Amends definition of certain Non-Reporting Financial Institutions under FATCA

cbdt-amends-definition-of-certain-non-reporting-financial-institutions-under-fatca

CBDT vide Notification No. 112/2022 dated 07.10.2022 in G.S.R. 769(E) through Income-tax (Thirty Third Amendment) Rules, 2022 amended the definition of certain "non-reporting financial institution"  for the purpose of reporting under Foreign Account Tax Compliance Act (FATCA) in accordance with the provisions of section 285BA of the Income-tax Act, 1961 (‘Act’) and Rule 114F of the Income-tax Rules, 1962 to make the definition more specific to the United States.


In order to improve International Tax Compliance and to implement Foreign Account Tax Compliance Act of the United States of America, an Inter-Governmental Agreement (IGA) and Memorandum of Understanding (MoU) was signed at New Delhi on the 9th day of July, 2015 between the Government of the Republic of India and the Government of the United States of America.



“FATCA” or Foreign Account Tax Compliance Act is a United States (US) law aimed at the prevention of tax evasion by US citizens and residents (“US Persons”) through the use of offshore accounts. FATCA obligates foreign financial institutions (FFIs), including Indian financial institutions to provide the US Internal Revenue Service (IRS) with information on the accounts of to report accounts held by specified US Persons.


The IGA between India and USA provides that the Indian FIs will provide the necessary information to Indian tax authorities, which will then be transmitted to the USA. The IGA between India and USA has become operational effective August 31, 2015. The text of the IGA signed between India and USA is available here.


To accommodate FATCA, Income Tax Law was amended in 2014 to insert Rules 114F to 114H and Form 61B.


Section 285BA provides for reporting requirements by a prescribed reporting financial institution which is responsible for registering, and maintaining books of account or other documents containing a record of any specified financial transaction or any prescribed reportable account.


Rule 114F(5) defines a "non-reporting financial institution" which inter-alia includes 

● a financial institution with a local client base;

● a local bank;

● a financial institution with only low-value accounts.


The 33rd Amendment Rules, 2022 has amended the definition of the above-mentioned institutions to make them applicable for U.S. reportable accounts. Hence, the aforementioned "non-reporting financial institutions" shall be termed as non-reporting financial institutions in case of any U.S. reportable account.


Further, the Board has also amended the definition of "Treaty Qualified Retirement Fund" to make it U.S. centric.


Read the full text of CBDT Notification No. 112/2022 dated 07.10.2022 on Amendment in definition of certain Non-Reporting Financial Institution under FATCA


MINISTRY OF FINANCE 

(Department of Revenue) 

(CENTRAL BOARD OF DIRECT TAXES) 

NOTIFICATION 

New Delhi, the 7th October, 2022


G.S.R. 769(E).—In exercise of the powers conferred by section 285BA read with section 295 of the Income-tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes hereby makes the following rules further to amend the Income-tax Rules, 1962, namely:–


1. Short title and commencement.—(1) These rules may be called the Income-tax (Thirty Third Amendment) Rules, 2022.


(2) They shall come into force from the date of their publication in the Official Gazette.


2. In the Income-tax Rules, 1962, in rule 114F, in sub-rule (5),–


(A) for clauses (i), (j) and (k), the following shall be substituted, namely: —


“(i) a financial institution with a local client base, in case of any U.S. reportable account;

(j) a local bank, in case of any U.S. reportable account;

(k) a financial institution with only low value accounts, in case of any U.S. reportable account;”;


(B) in the Explanation, in clause (D) for the words and brackets “the Government of any country or territory outside India on income that it derives from sources within such country or territory outside India (or would be entitled to such benefits if it derived any such income)” the words and brackets “the United States of America on income that it derives from sources within the United States of America (or would be entitled to such benefits if it derived any such income)” shall be substituted.


[Notification No.112/2022/F. No. 370142/43/2022-TPL (Part 2)]

UMME FARDINA ADIL, Under Secy.


Note: The principal rules were published in the Gazette of India, Extraordinary, Part-II, Section-3, Sub-section (ii) vide number S.O. 969 (E), dated the 26th March, 1962 and last amended by the Income-tax (32nd Amendment) Rules vide notification number G.S.R. 733 (E) dated 28.09.2022.


Download CBDT Notification No. 112/2022 dated 07.10.2022 on Amendment in definition of certain Non-Reporting Financial Institution under FATCA in PDF format

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