FATCA (Foreign Account Tax Compliance Act) is an act enacted by US in 2010 to combat tax evasion by US nationals holding investments in foreign countries. It is an Inter Governmental Agreement (IGA) signed by US with 68 countries.
It requires financial institutions to share financial activities of their US customers with US government and vice-versa. It bounds US to provide information of Indian account holders in US and Indian government will provide similar information to US.
If financial institutions do not comply with provisions of the ACT, then they have to suffer 30% withholding tax.
Let’s say SBI has business dealing with US based company Microsoft. Microsoft was scheduled to pay Rs 100 crore to SBI. Let’s see what happens if SBI does not comply with FATCA
Thus SBI have to pay Rs 30 crore as withholding tax.
The act has introduced two models of sharing information:
Thus sharing of information is exempted for individual/entity investment less than $50,000 in other country.
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Punjab Civil Services 2020