In our whitepaper, Interaction of Indian and U.S. Tax Laws, we examined and explained the interaction of Indian and U.S. laws. In doing so, an underlying goal of ours was to make readers, such as high net-worthIndians and business owners, aware of their compliance requirements as they move from home country to another host country. While it may be difficult for high net worth Indians to imagine how the changes to both Indian and U.S. tax return filings are going to play out, they should take the Black Money (Undisclosed Foreign Income and Assets) and the Imposition of Tax Act, 2015 (Black Money Act) seriously.; especially given how effective the Foreign Account Tax Compliance Act (FATCA) has been in ensuring compliance of U.S. citizens.
FATCA requires financial institutions, like banks, to report the relevant information to the Internal Revenue Service, i.e. a tax administering authority in the U.S. Under FACTA, relevant information includes the details of all accounts held directly or indirectly by U.S. Persons (i.e. U.S. citizens or residents). It is important to note here, that the U.S. has entered into Inter-Governmental Agreement with various countries, including India. As such, Indian financial institutions are required to report certain tax relation information for U.S. Persons to the Indian tax authorities; they are also periodically required to transmit this information to the U.S. authorities.
Indian financial institutions who fail to collect such information can be levied a 30% withholding tax on any U.S. sourced income. For additional information, please reference the whitepaper titled, Interaction of Indian and U.S. Tax Laws, as it emphasizes the need for HNW individuals and business owners to become more aware of their tax and information reporting obligations in their home and host countries. The paper also highlights additional reporting obligation,such as the obligation to file a Report of Foreign Bank and Financial Accounts (FBAR) in the U.S. Under FBAR, U.S. citizens and residents must report their interest in, or signature or other authority over, foreign financial accounts with an aggregate value exceeding $10,000 at any time during the U.S. calendar year.