India and US have signed an Inter Governmental Agreement (IGA) to implement the Foreign Account Tax Compliance Act (FATCA) to check offshore tax evasions which will smoothen the exchange of tax information between two countries, which will be operational from 30 September. FATCA was signed by Revenue secretary Shaktikanta Das and US Ambassador Richard Verma in New Delhi.
Under the agreement, Indian Financial Institutions would have to share information about US tax payers to the revenue department which would be passed on to US Internal Revenue Service (IRS). Under the pact, the IRS will provide similar information about Indian account holders in the US. If the financial institution does not comply to Fatca, it will be liable to pay 30% penalty tax on all its US revenues including dividends, interest, fees and sales. Furthermore, Fatca will help India in dealing with the black money menance.
Fatca is a US law enacted in 2010 that requires foreign financial institutions to make disclosures about American taxpayers to US authorities, but contains confidentiality clauses to protect this mandatory exchange of information.
In a related development, India and five other nations had last month joined another multilateral agreement for automatic exchange of financial information - the Multilateral Competent Authority Agreement (MCAA) - to combat tax evasion and deal with the problem of black money. The finance ministry statement said that signing Fatca and MCAA are two important milestones in India’s fight against black money.