How Indian Banks Report Your Account to the IRS Under FATCA

If you are an Indian citizen or of Indian origin living in the United States, you might be wondering how your bank accounts in India are reported to the IRS under FATCA (Foreign Account Tax Compliance Act). Understanding this process is crucial to ensure compliance with both US and Indian tax laws.

What is FATCA and Who Does it Affect?

FATCA is a US law aimed at combating tax evasion by US persons holding accounts outside the United States. A 'US person' includes US citizens, green card holders, and anyone who meets the substantial presence test. This means that if you are living in the USA on a work visa, such as H-1B, you may be considered a US tax resident. As a US tax resident, you are required to report your worldwide income, which includes any income earned in India.

How Do Indian Banks Comply with FATCA?

To comply with FATCA, Indian banks are required to gather information about their customers' US tax residency status. When you open an account or maintain an existing one, the bank will ask you to provide details regarding your US tax residency and to complete a FATCA self-certification form. This process is essential for the banks to report your account information to the IRS accurately.

Due to the intergovernmental agreement between India and the United States, financial account information is exchanged between the two countries. This means that even if you do not report your accounts, they can still be identified through data sharing, rather than through an audit. Therefore, it is vital to ensure that your accounts are reported correctly and that you comply with all necessary regulations.

Understanding FBAR Requirements

In addition to FATCA, if you have foreign financial accounts, you may also need to file an FBAR (Foreign Bank Account Report). The FBAR is filed electronically using FinCEN Form 114 and is separate from your federal tax return. You are required to file an FBAR if the aggregate balance of all your foreign financial accounts exceeds $10,000 at any point during the calendar year. It’s important to note that this amount refers to the combined peak balance across all accounts, not the year-end balance or individual account balances.

The FBAR deadline aligns with your tax return due date in April, and there is an automatic extension to October, meaning you do not need to request an extension to file your FBAR. This requirement applies not only to accounts you own but also to accounts where you have signature authority.

What to Do Next

To ensure you are compliant with both US and Indian tax laws, take the following steps:

• Review your financial accounts in India and determine if you need to report them under FATCA and FBAR.
• If you are a US person, complete the FATCA self-certification form when required by your Indian bank.
• Monitor the aggregate balance of your foreign accounts to determine if you need to file an FBAR.
• File your FBAR electronically using FinCEN Form 114 by the appropriate deadline.

By staying informed and proactive about your financial reporting obligations, you can navigate the complexities of tax compliance with confidence.

Before you act on this

This article is general information for the Indian community in the United States, not tax or legal advice. Thresholds, penalty amounts and filing dates are set by the IRS and FinCEN and are adjusted over time, so confirm the current year's figures before you rely on them. Your own position depends on your visa status, residency and the specific accounts you hold — speak to a qualified cross-border tax professional before filing or making a decision.