Investments worth over Rs 1 lakh crore in mutual funds are likely to face closure if they do not meet the August 31, 2016 deadline to comply with the Foreign Account Tax Compliance Act (FATCA). However, mutual fund trade body, Association of Mutual funds in India (Amfi) has asked finance ministry to extend the deadline for few more months and ‘freeze the account’.India has signed an inter-governmental agreement with the US for implementing FATCA. It was enacted by US Government to combat tax evasion by US persons with accounts held outside the US and who do not declare their taxable income or gains for US tax purposes / to force foreign financial institutions to disclose US account holders’ information to the Internal Revenue Service (IRS) in order to curb offshore tax evasion. These make it mandatory for financial institutions such as mutual funds in these countries to provide details of clients with a US connection.
CVR Rajendran, CEO, Amfi said, “We have already asked finance ministry to freeze the accounts instead of closing it. Though industry along with other stakeholders are working to complete the deadline, but we have also asked for extension of deadline.” Officials in the industry also added that, there are over 50 lakh of folios that are non-FATCA complaint. Investments before July 2014 are exempted from FATCA regulations.
Amfi on Thursday issued a press release stating that, “Freezing of accounts” in mutual fund parlance merely means permitting further transaction in the account only after the requirement is fulfilled, which in the context of FATCA compliance, is to provide a self-certification about one’s tax residency. It is pertinent to mention here, when a folio is “freezed”, the investor’s account would continue earn the returns/benefits accruing in the normal course. For FATCA compliance, all that the investors need to do is to provide a simple self-certification in the prescribed form that helps determine whether the investor has tax residency in other countries, particularly the US.”