IT officials flag lapses in tax reporting under FATCA, CRS by financial institutions

The Income Tax Department has called upon financial institutions to improve their financial reporting in relation to FATCA (Foreign Account Tax Compliance Act) and CRS (Common Reporting Standard) declaration. Speaking in Mumbai on Thursday, Debjyoti Das, Principal Director General of Income Tax (Intelligence & Criminal Investigation), warned that persistent lapses in this regards could even have adverse effects on the country's rating.

FATCA is a US tax law, under which US citizens have to submit any foreign accounts they may be holding. CRS is a similar initiative developed by the OECD (Organisation for Economic Cooperation and Development).

An individual is required by a financial institution to fill such a form where the country of tax residence. This information is shared among countries.

Das pointed that the Income Tax Department had observed defects in the reporting that was happening in this regard from Indian financial institions. He said there were various reasons for this and not all of them may be in the control of financial institutions. But there were defects, and foreign jurisdictions do raise those queries.

"It can have certain adverse consequences, if you do not address them on time. We can end up with a downward rating in this regard," stressed Das.

According to him, around 97% of all the defects that were found, the errors were related to mismatch in or incorrect tax identification number (TIN).

He also felt inaccuracies in data collection or people failing to update their know your customer records once relocating abroad also as possible reasons for the errors that were emerging in financial reporting.

Das said that the government and the financial institutions need to work together to ensure there was a proper closure of the queries raised by foreign jurisdictions. More importantly, he felt that financial institutions must ensure that the reporting is proper so no queries can be raised.

"If you don't have a robust data collection mechanism, the reporting automatically suffers. This is an ongoing process. I have seen from the data that we are improving every year. But it also so happens that the number of reports are also increasing due to the mobility of Indians travelling abroad," he pointed.

The Income Tax Department held a summit on Thursday in Mumbai focused on FATCA and CRS reporting obligations, due diligence, data quality, compliance challenges and corrective measures. The Department also proposed regular webinars, nodal officers and a dedicated helpdesk to support financial institutions in this regard.

There will also be capacity-building programs for the relationship managers and account opening personnel in financial institutions.