The Securities and Exchange Board of India (Sebi) has asked financial institutions to register with the American tax regulator by Thursday. Those who do not would be subject to a withholding tax of 30 per cent on all payments coming out of the United States of America.
The Reserve Bank of India has issued the same instruction. This is in line with the requirement under a new American law, the Foreign Account Tax Compliance Act (Fatca). All foreign institutions would have to provide information on whether they have any clients who would be subject to taxation under American laws. They are required to register with America’s Internal Revenue Service for this purpose. After doing so, they get a Global Intermediary Identification Number; without this, they get subject to the witholding tax.
An earlier Sebi circular dated June 30 had said such registration would be required after a formal inter-government agreement on the matter. Now, it has cited a Government of India (GOI) instruction, issued on Tuesday.
“Registration should be done only after the formal IGA is signed. Information in this regard will be communicated to you,” the earlier Sebi circular had said.
A lawyer helping financial institutions with Fatca said many are yet to register.
The US has been signing agreements with governments around the world to ensure their financial institutions comply with this law. The earlier Sebi circular had said GOI had agreed in substance but this was yet to be formalised.
The move leaves one day for all financial institutions to formally register themselves. Those who have registered but are yet to receive an identification number could indicate this to the IRS, the circular says. In which case, they get an additional 90 days.