For those of you worried by reports that your mutual fund accounts would be shut pending FATCA compliance, take a breather. The Association of Mutual Funds in India (AMFI) has categorically clarified that it has only proposed “freezing of accounts” of those investors who fail to submit their FATCA filing before the August 31 deadline. This, however, does not mean that the non-compliant MF accounts will “forced into redemption” or “impounded” (shut down). Thus, when an investor’s account is frozen, it only means that “further transactions will be stopped” until the FATCA filing is completed, while you will continue to earn returns on your holdings as usual.
Besides the media reports, a note from the Central Board of Direct Taxes (CBDT) on December 31, 2015, also created some confusion. It stated that “all those who had invested in MFs between July 1, 2014 and August 31, 2015, had to comply with the FATCA norm by August 31, 2016, failing which “unreported accounts would attract closure”.
However, the AMFI was quick to clarify amid the recent brouhaha. To quote the AMFI, “Freezing of accounts in the mutual fund parlance merely means permitting further transaction in the account only after the requirement is fulfilled, which in the context of FATCA compliance is to provide a self-certification about one’s tax residency.”
What is the way out? All you have to do is to take a PDF of the FATCA declaration form from any mutual fund registrar (including Karvy) and provide a self-certification about your tax residency in other countries, especially the US. You can either submit a print-out of the PDF form at the nearest office of the registrar or he process can also be completed online. The declaration has to be made to any one of the mutual funds serviced by the registrar and not for each mutual fund separately, for the sake of convenience.
This poses some questions? What is the FATCA? Are you among those affected by this norm? For the uninitiated, the Foreign Account Tax Compliance Act (FATCA applies to investor(s) financially connected to a foreign country or liable to pay taxes in a foreign country, especially the US, where the law was passed (this also includes non-NRIs with undeclared assets in the US).Even so, the media reports last week stated that almost 50 lakh MF accounts, with assets of over 1 lakh crore were bound to be affected.