Financial institutions asked not to close MF, insurance accounts for non-compliance

In a major relief to mutual fund (MF) investors and those who have invested in insurance schemes, the Central Board of Direct Taxes ( CBDT) has asked financial institutions not to close accounts that are not compliant with tax information sharing law FATCA (foreign account tax compliance act).

MF investments worth Rs 1.1 lakh crore are at the risk of either being frozen or closed for non-compliance of FATCA. Most of these investments are in equities. The deadline for furnishing information as part of compliance is August 31.

“For providing immediate relief to the account holders and in wider public interest, it has been decided that, the financial institutions may not close the accounts by 31st August 2016 in respect of which self-certifications have not been obtained under the alternative procedure," the CBDT said. “The revised timelines for l completing due diligence in respect of such accounts shall be notified in due course."

According to Meenakshi J Goswami, the official spokesperson of CBDT, “In the interim, the financial institutions should continue to work on completing the required due diligence, including obtaining self-certifications."

FATCA is part of an antitax-evasion regime designed to locate income and assets held by US persons in offshore accounts.

The Association of Mutual Funds in India (AMFI) had requested markets regulator Sebi to freeze the non-compliant accounts instead of closing them from August 31.

Closing of non-compliant accounts would lead to an upheaval in the markets as investments would have to be redeemed. AMFI CEO CVR Rajendran had told TOI on July 19 that the association was not in favour of closing the accounts.

“Stakeholders have highlighted several difficulties in following the provision for `closure' of financial accounts. In vi ew of the same, India and the United States (US) are discussing the alternative procedures with a view towards adjusting them to permit a few month (s) extension of time for completing the due diligence and not requiring account closure within one year of entry into force of the agreement (i.e., August 31, 2016),“ CBDT stated.

The inter-governmental agreement (IGA) with the US for implementing FATCA came into effect on August 31, 2015. Financial institutions were told to obtain self-certification and carry out due diligence procedure to determine the reasonableness of the self-certification in respect of all individual and entity accounts opened from July 1, 2014 to August 31, 2015.