Transparency on Foreign Assets and Income: An Overview of CRS and FATCA Compliance

In an increasingly interconnected world, the need for more transparent tax reporting is greater than ever. The Common Reporting Standard (CRS) and the Foreign Account Tax Compliance Act (FATCA) are two widely discussed global frameworks developed to improve tax compliance and combat tax evasion. These standards require individuals to disclose their global income and assets, which, in turn, enhances cooperation between the tax authorities of the world.

Understanding CRS and FATCA

CRS, or the Common Reporting Standard, is a tool under the Organisation for Economic Co-operation and Development (OECD) that compels financial institutions to reveal information regarding accounts of foreign residents held by them to their countries of residence. Every year, this information is exchanged with other partner states to ensure tax transparency. On the other hand, FATCA, or the Foreign Account Tax Compliance Act, is a law passed by the United States requiring foreign financial institutions to report accounts owned by U.S. taxpayers to the IRS.

Information Shared with India

As per CRS and FATCA, India receives information about accounts held by its residents in foreign jurisdictions. The details provided include the account holder’s name, address, tax identification number (TIN), account numbers, balances, and income details such as interest, dividends, and other financial proceeds. This information helps identify residents who may have undisclosed foreign assets and income.

Disclosure under Indian Law

Under the Income-tax Act, 1961, it is mandatory for residents to disclose foreign assets and income in their Income Tax Returns (ITR). Foreign assets are reported using Schedule FA, and foreign income is reported using Schedule FSI. In addition, Schedule TR is used to claim tax relief for taxes paid abroad.

Failure to declare such information can result in penalties and prosecution under the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015. Complying with these rules is essential to avoid legal consequences.

Benefits of Transparent Tax Reporting

1. Compliance and Governance: Transparent reporting of global income and foreign assets reflects a taxpayer’s commitment to good governance. This builds trust with tax authorities and helps avoid unnecessary scrutiny.

2. Legal Security: Comprehensive disclosure ensures that taxpayers are not at risk of penalties or legal actions under relevant tax laws.

3. Tax Reliefs: Proper reporting allows individuals to claim tax relief on taxes paid abroad, preventing double taxation and optimizing tax liabilities.

4. Support for National Development: Proper tax payments on global income contribute to funding public services and infrastructure, aiding national development.

Opportunity for Revised Tax Returns

The Income Tax Department allows taxpayers to rectify any omissions or inaccuracies in their original ITR for the financial year (FY) 2023-24 by filing a revised return by 31st December 2024. This option helps taxpayers:

• Ensure accurate disclosure of all foreign assets and income.
• Avoid potential penalties for non-disclosure.
• Access available tax reliefs under Indian tax laws and the Double Taxation Avoidance Agreement (DTAA).

By filing a revised return, taxpayers maintain compliance and transparency in their tax matters, ensuring accuracy in their records.

The Income Tax Department’s e-campaign reminds taxpayers of their duty to disclose foreign assets and income under CRS and FATCA. Following these regulations and ensuring transparency helps taxpayers avoid legal complications, supports national growth, and upholds a clear conscience. Filing a revised return, if needed, is a valuable opportunity to make comprehensive and accurate disclosures.