The Foreign Account Tax Compliance Act (FATCA) is a United States federal law that requires United States persons, including individuals who live outside the United States, to report their financial accounts held outside of the United States, and requires foreign financial institutions to report to the Internal Revenue Service (IRS) of US about their U.S. clients. Congress enacted FATCA to make it more difficult for U.S. taxpayers to conceal assets held in offshore accounts and thus to recoup federal tax revenues. The law aims to check and impose withholding tax on illicit activities of some wealthy individuals who use offshore accounts to evade millions of dollars in taxes. A noncompliance with FATCA entails 30 per cent withholding tax on certain US source payments.
The Government of India has concluded an agreement with the Government of USA for entering into an Inter Governmental Agreement (IGA) for implementation of FATCA.
FATCA mandates the deduction and withholding of tax equal to 30% on a US source payment to recalcitrant FIIs or FFIs in non compliant countries which do not meet with the requirements of FATCA. Such 30% withholding will also be imposed by other FATCA compliant countries against non compliant countries. The consequences of not signing the agreement with US under FATCA would be disastrous. It will negate the efforts being undertaken by our government to revive the Indian economy.