I-T dept flags gaps in foreign investors' tax identification numbers, seeks changes in account-opening rules
The income tax department plans to engage with financial sector regulators to seek changes in account-opening requirements to improve the quality of financial information shared with foreign jurisdictions under international tax reporting agreements, PTI reported on Thursday.
Debjyoti Das, Principal Director General of Income Tax (Intelligence & Crime Investigation), told the news agency that the income tax department intends to consult regulators on the changes required to ensure India meets its international tax reporting obligations.
As part of the exercise, the department is also seeking feedback from banks, insurance companies, mutual funds and other financial institutions to understand challenges in collecting the required information and assess whether existing regulations need to be amended.
He said financial institutions have to comply with various regulatory requirements while reporting foreign transactions, including the foreign account tax compliance act (FATCA), the common reporting standard (CRS) and, to a large extent, the prevention of money laundering act (PMLA).
The accuracy of such reporting largely depends on the quality of information collected by these institutions when customers from other countries open accounts. Any gaps or errors in these details can affect the accuracy of information subsequently reported to tax authorities.
Das clarified that the proposed changes concern foreign residents investing in India and not Indians investing overseas.
He said 97-98% of the defects identified in reports exchanged with foreign jurisdictions relate to tax identification numbers (TINs) that are either missing, incorrectly formatted or do not match the actual identification number.
However, this does not mean that 97-98% of all reports are incorrect. "Of the reports that they have submitted, it is not as if 97 per cent of them are wrong. No, a very small percentage are wrong. In that wrong percentage, 97 per cent relates to TIN," the senior official told PTI.
While the proportion of defective reports has been declining each year, the overall number of reports is also rising with time as more foreign residents invest in India, Das added.
The department will also continue outreach and training programmes for compliance officers, relationship managers and account-opening personnel to improve data collection and reporting.
On enforcement, Das said the department favours a collaborative approach and penalties should be imposed mainly in cases of deliberate defaults.
"We would like it to be more collaborative, and penalties should be the exception, not the rule," he told the news agency.
(With inputs from PTI)
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