In compliance with the FATCA (Foreign Account Tax Compliance Act) provisions, all bank accounts opened between July 1, 2014 and August 31, 2015 need to submit self- certification by April 30, 2017. As per the Income tax rules, these had to be obtained by 31st August 2016 which was later extended indefinitely due to difficulties faced by stakeholders. Financial Institutions and Mutual funds had also asked customers to comply with the new norms under FATCA. Now the Income tax department has given a firm date after which all accounts, which are not self-certified and opened between the above duration, would be closed.
As per the notification from Central Board of Direct Taxes “The account holders may be informed that, in case self-certifications are not provided till April 30, 2017, the accounts would be blocked, which would mean that the financial institution would prohibit the account holder from effecting any transaction with respect to such accounts,”.
Need for the above is due to the conditions of Inter-Governmental Agreement (IGA) signed by Indian Government with the US for automated exchange of information between the two countries. Under this agreement, every Indian investor, at the time of operating any financial or investment account, must also provide an additional KYC and compliance form. This is in addition to the regular KYC information already submitted with the Bank. This would also mean self-certification for the account if you already have a demat account or open a new one to make fresh purchase of mutual funds or any other investments like Fixed Deposits, etc.
The main purpose of FATCA compliance is to ensure that tax is paid by the individuals on income generated from their money parked in overseas banks/financial institutions. FATCA provides information about people having accounts with them to respective Financial Institutions and Banks of their country.