Nearly 98% of FATCA, CRS reporting defects relate to tax identification numbers: I-T official

Nearly 98 per cent of the defects identified in India's reporting of financial account information to foreign jurisdictions under the Foreign Account Tax Compliance Act (FATCA) and Common Reporting Standard (CRS) relate to tax identification numbers (TINs), a senior Income Tax Department official said on Thursday.

The department is also looking at whether changes to account-opening requirements could improve the collection of information needed for such reporting. It is gathering feedback from financial institutions on the difficulties they face and plans to approach regulators, including SEBI, to consider changes once it has a clearer picture of these issues.

We do plan to sit with the regulators and request them to consider a change in the requirements at the time of opening of the account, so that our reporting, sovereign reporting requirements are taken care of," Debjyoti Das, Principal Director General of Income Tax (Intelligence & Criminal Investigation), said at an outreach programme with financial institutions.

The TIN-related defects include missing identification numbers, incorrect formats and numbers that do not match the account holder's details. Das clarified that the 97–98 per cent figure refers to the share of TIN-related issues among reports with defects, and not the proportion of all reports that are defective. The overall proportion of reports with discrepancies is small.

India shares financial account information with the US under FATCA and around 90 other jurisdictions under CRS as part of its commitments to the automatic exchange of information. The reporting covers residents of foreign jurisdictions who hold financial accounts in India.

The department wants financial institutions to improve due diligence at the account-opening stage to ensure that customers' tax identification details are correctly captured. It has also asked them to strengthen monitoring and update customer records when account holders change their tax residency.

"If you do not have a robust data collection mechanism, the reporting automatically suffers," Das said, adding that the quality of information collected by relationship managers and account-opening personnel was critical to improving reporting.

Das said the department was engaging with banks, mutual funds, insurance companies and other financial institutions to understand the challenges in collecting the required information. It will also expand training programmes for relationship managers and account-opening personnel across financial centres, including Mumbai, Delhi, Kochi and Bengaluru.

The department prefers a collaborative approach to improving compliance, but could take action in cases of deliberate or repeated defaults.

"We would like to be more collaborative and penalty should be the exception, not the rule," Das said, adding that penalties were generally not imposed for technical defaults.

He said reporting quality had improved over the years, although the volume of reports was also increasing as more foreign residents invested in India.