What is FATCA?

My experience was similar when I updated my NRO account information.

The bank asked me to complete a FATCA/CRS declaration and provide my U.S. tax information. At first I thought the bank was asking me to file a U.S. tax return, but that's not what was happening.

The bank was collecting information as part of its reporting obligations.

The IRS explains that foreign financial institutions may report information about financial accounts held by U.S. taxpayers.

The important thing is to give the bank accurate information about your citizenship and tax residency.

If you're a U.S. citizen or green card holder, don't simply select “No” because your account is in India or because you're living in India.

I initially confused FATCA with FBAR, but they aren't the same.

There are actually several different reporting requirements that can come into play for Americans with Indian accounts.

FATCA is the broader U.S. reporting framework under which foreign financial institutions provide information about certain U.S. account holders to the IRS.

Form 8938 is a taxpayer filing used to report specified foreign financial assets when the applicable thresholds are met. It's filed with the U.S. income tax return.

FBAR, on the other hand, is filed separately with FinCEN and has its own rules and thresholds.

The IRS specifically says that filing Form 8938 does not eliminate an applicable FBAR filing requirement. Depending on the circumstances, someone could potentially have to file both, one, or neither.

That's why I wouldn't look at a FATCA declaration from an Indian bank and assume that it means you've completed all your U.S. foreign-account reporting.

They're related, but they're not interchangeable.

The simplest explanation I found is that FATCA is mainly about financial account reporting and transparency, not a separate tax that you pay simply because you have an overseas bank account.

FATCA stands for Foreign Account Tax Compliance Act. It was enacted by the United States in 2010 and generally requires foreign financial institutions to identify and report certain information about accounts held by U.S. taxpayers.

That's why an Indian bank may ask whether you are:

• A U.S. citizen
• A U.S. tax resident
• A green-card holder
• Otherwise considered a U.S. person for U.S. tax purposes

The bank may also ask for your U.S. taxpayer identification number and other information.

FATCA doesn't mean that every Indian account automatically creates a U.S. tax bill.

The important point is that reporting and taxation are two different things.

For example, if you're a U.S. citizen living in India and have an NRE account, the bank may need to collect FATCA information about you. Separately, you need to determine what U.S. tax and information-reporting obligations apply to your particular account and income.

The FATCA works like. 

First, FFIs register with the IRS, then get the information of the US account holders, then FFIs identify US taxpayers' accounts and send the report to the local tax authority, and the IRS and The information sent by the FFIs is compared by the IRS with the tax returns filed by the US taxpayers to identify and prevent tax evasion.

Here are some of the key takeaways of FATCA: 
 

• FATCA needs to report the annual reports of residents and US citizens of foreign financial assets over 50,000 USD to report to the IRS to prevent tax evasion. 
• Foreign financial institutions report the US account holders' information, or those who face a 30% withholding tax on the financial income generated in the US. 
• If the US taxpayers living in a foreign country have a higher threshold than he or she need to file, if the specified foreign financial assets are more than 2,00,000 USD. 
• FATCA compliance is costly for the foreign financial institutions, potentially reaching millions of dollars for large banks. 
• If any us taxpayers continuously fail to file, then they may get penalties for non-compliance, including a $10,000 fine and some other penalties.