India and the USA entered into a Model 1 IGA for implementation of FATCA on 31st August, 2015. As part of the IGA implementation, India’s income tax rules included an alternate procedure for due diligence (Rule 114H(8)).
This rule required financial institutions to obtain self-certifications from account holders who had opened new accounts as of 1 July 2014. The due diligence process also included a requirement that the financial institution determine the reasonableness of the submitted self-certifications. If the financial institution determined that the self-certification was unacceptable and the account holder failed to cure the defect by 31 August 2016, then the financial institution was required to close the account. Under Rule 114H(8), the financial institution was also required to report the account if it were found to be a “reportable account.”
India’s Central Board of Direct Taxes (CBDT) acknowledged the complexity of following these due diligence rules and announced that Indian financial institutions may not close accounts by 31 August 2016 due to non-receipt of a valid self-certification from the account holder.
The CBDT is in discussions with the USA with the goal of extending the 31 August 2016 account closure deadline a few months. Pending a further announcement from CBDT, Indian financial institutions should continue to work on completing the required due diligence, including obtaining self-certifications.
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