The FATCA law was enacted in 2010 to augment the taxation framework in the United States. It was a component of the Hiring Incentives to Restore Employment (HIRE) Act. FATCA’s primary objective is to improve tax compliance among US taxpayers with accounts and investments in other countries. FATCA requires compliance from foreign institutions. Under this, the foreign institutions in countries that are a part of the agreement have to report on the assets owned by taxpayers of the United States in their countries. This reduces tax evasion and promotes healthy financial cooperation among participating countries.
In addition, the law mandates that US taxpayers declare their foreign holdings in annual reports.
What is NPS
The National Pension System is an initiative of the Government of India, first introduced in 2004. It seeks to cover all Indians under the post-retirement social security net to promote financial security. The NPS scheme is also open for NRI investments. Under the NPS scheme, a member’s payments are invested in the debt and equities markets. The NPS interest rate is dependent on the market returns and is calculated every month. Thus, the final pension amount that the member receives varies based on the returns from these investments.
All Indian citizens aged 18-70 years can open an NPS account. NPS accounts reach maturity when you turn 60, with an option to extend it till 70.
If you are looking for a safe investment option, you can consider fixed deposit. They offer guaranteed returns and a fixed interest rate throughout your investment tenure.
Why is the NPS FATCA declaration needed
After the brief overview of NPS and FATCA, let us now understand why FATCA is necessary for NRIs who have invested in the NPS.
FATCA covers all citizens, residents, and non-resident aliens. It helps individuals avoid double taxation and comply with the taxation policies of both countries. While the FATCA declaration for NPS is the major topic of discussion, the FATCA declaration is broader and covers a wide range of incomes and investments. For example, the investments include mutual funds, fixed deposits, NPS, equities, bank interest, PPF, and capital gains. These must be declared under FATCA. On the other hand, jewellery, automobiles, and household assets are just a few examples of exemptions from the FATCA.
The Indian government approved FATCA in 2015, mandating all NRIs in the US who are drawing income from investments in India, like the NPS or mutual funds, submit a self-certified FATCA declaration. This declaration is then validated by the concerned financial institution in India.
FATCA self-declaration
Self-declaration of FATCA in NPS investments is mandatory. Through self-certification, NRIs must report to financial institutions the details of their assets and incomes. All NPS accounts that have been opened with National Securities Depository Limited (NSDL) post July 1, 2014, are liable to be blocked without NPS FATCA declaration.
Steps for NPS FATCA declaration
If you want to ensure that your NPS account is FATCA compliant, follow the steps below:
- For NPS FATCA self-declaration, visit the official portal of NSDL.
- From the options presented on the left side of the screen, choose ‘FATCA Compliance’.
- After this, you will be redirected to another tab to self-certify the declaration.
- Here, you have to input your Permanent Retirement Account Number (PRAN) and click ‘Submit’.
- The next step is to fill out your details in the FATCA self-declaration form. These details include name, income, PAN number, city, nationality, residence, occupation, and country of birth. If applicable, you must also fill in the tax residency number.
- Next, you have to check the box to sign and authorise the form.
- After this, an OTP will be sent to your registered mobile number.
- After the final OTP verification, you will receive an acknowledgement of the NPS FATCA declaration.
Components of the NPS FATCA declaration form
- Basic information: Name, PAN, date of birth, etc.
- Part I: This includes information on the country of your birth, citizenship, and residence for taxation purposes.
- Part II: If you are a US citizen, you must input the Tax Identification Number (TIN).
- Part III: This step has the declaration that you must sign. This involves reviewing the information you have put in and ensuring all the details are correct before signing it.
- Part IV: You are only required to complete this section if the country mentioned in Part I is not India and the TIN is unavailable. You must complete this if you are a US citizen but do not have a TIN.
If you are looking to diversify your investments portfolio, Fixed Deposit (FD) can be a good choice. FDs provide a fixed interest rate throughout the investment period. Interest rate on FDs does not change with market fluctuations. NBFC’s like Bajaj Finance offers one of the highest rate of up to 8.85% p.a. on their Fixed Deposits.
Conclusion
The FATCA declaration for NPS serves as a crucial step in ensuring compliance with international tax regulations, particularly for NRIs residing in the US who have investments in India, such as the National Pension System (NPS). FATCA, designed to prevent tax evasion and promote transparency in cross-border financial activities, necessitates NRIs to submit a self-certified declaration regarding their foreign assets and incomes, including NPS investments.
This declaration, mandated by the Indian government since 2015, is essential for avoiding double taxation and aligning with the taxation policies of both countries.
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