The Foreign Account Tax Compliance Act (FATCA) is a law that requires foreign financial institutions to report on the assets that are held by the account holders of the U.S. It also states that if you are a US citizen or resident living in the US, then you must present an annual report on all your foreign account holdings. FATCA, meaning the Foreign Account Tax Compliance Act, is a part of the HIRE Act, and it was passed in 2010. Form 8938 is the FATCA form, and it is used to report all foreign account holdings. And if you do not perform FATCA reporting, then there could be some serious penalties.
FATCA was signed into law at the time when Barack Obama was the president, and it was enacted under the Hiring Incentives to Restore Employment Act. The FATCA filing requirements are that each resident of the US has to file an annual report of any foreign account holdings. The primary goal of FATCA was to prevent tax evasion by American individuals and businesses that operate, invest, and earn taxable income from foreign countries. Although it is not illegal to keep an offshore account, keeping it a secret from the Internal Revenue Service is an illegal offense.
Any American taxpayer who has financial assets of $50,000 or more has to file Form 8938. The assets can be in the bank accounts or may be in the form of bonds, stocks, or other financial instruments. The foreign Institutions, Individual taxpayers who are living abroad, and individual taxpayers living in the US all comply with FATCA. They all should consider the annual reporting of foreign account holdings as their duty; otherwise, they will be liable for the penalties.
For NRIs who earn their income in India, FATCA compliance adds an extra layer of tax reporting requirements because they already pay taxes on the generated income under the Indian tax laws. FATCA makes sure all US citizens, which also includes NRIs, must disclose their foreign account holdings and fulfill their tax obligations.
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