NRI and FATCA | What Non-Resident Indian’s need to know about US Tax Reporting

Banks and Mutual Funds Step up FATCA Enforcement for NRI Accounts

Since the passage of FATCA (or Foreign Account Tax Compliance Act) in 2010, the United States has negotiated a number of agreements with other countries to ensure its new bank reporting requirements are enforced throughout the financial world. India signed on to FATCA reporting in April of 2014 but there has been limited enforcement of that agreement, until now.

NRI World-Wide Income and US Tax Laws

Several large financial institutions such as HDFC and the State bank of India are requiring non-resident Indian accounts (NRIs) holders with ties to the United States to present a certificate of FATCA compliance. Indian expatriates living in the United States have always been required to report their worldwide income to the IRS but this requirement is not widely known and less commonly enforced. Foreign financial accounts held by US resident taxpayers must be reported on a yearly FBAR form with the US Treasury and on a resident’s yearly tax return. The penalties for failing to report the existence of these accounts (and pay tax on income earned) can be substantial; the penalty for failing to report any one account can be $10,000 (per year) for unintentional omissions or up to 50% of the account balance for intentional failures to report.


FATCA and NRI U.S. Tax Reporting Requirements

The FATCA agreement India signed with the US in April requires all Indian banks and mutual funds to report the existence of accounts held by potential US taxpayers. Under US law, citizens and residents must pay taxes on all income, worldwide. For many Indian expats, this means they can be required to pay tax to the US government on the interest earned on investments and real estate holdings in India. These investment are subject to US taxation even if they were purchased before the owner became a US resident with funds earned and taxed in India. The US taxes its residents on all income, regardless of where it is located.

For NRI account holders, they will be unable to retain their investments in India until they provide evidence they are complying with the new reporting rules. Yet many account holders worry that if they come forward now they will be subject to huge penalties for failing to report their Indian investments in previous years.

Helping NRI’s Get into Compliance with FATCA and the IRS

If you are a NRI residing in the U.S., you should make sure you are complying with all IRS and U.S. tax reporting requirements. The firm of Freeman Tax Law has extensive experience negotiating with IRS agents to reduce or, in many cases, exempt our clients from having to pay fines for failing to report their foreign financial accounts. Our attorneys, enrolled agents, and accountants help clients to determine what steps are necessary to ensure they are compliant with all US tax laws, minimize civil penalties, and give clients peace of mind by ensuring you they not be subject to future civil or criminal tax investigations.