Indian mutual funds have roped in global consultant KPMG to help them prepare for the Foreign Account Tax Compliance Act (FATCA), a new law enacted by the US to help combat tax evasion by Americans through overseas entities including in India.
FATCA, which took effect from July 1, may have significant implications for Indians residing in the US and investing in products offered by the Rs 10 trillion Indian mutual fund industry.
The implementation of the new tax evasion law is also expected to result in increased legal and compliance costs for the mutual fund houses here.
According to official sources, mutual fund houses have together roped in KPMG to help them meet the guidelines under FATCA, rather than individual funds hiring different consultants to meet the tedious FATCA reporting requirements.
Currently, there are 44 players operating in the mutual fund industry in India.
Market regulator Sebi, last month, asked fund houses and other market intermediaries to register with US authorities and obtain a Global Intermediary Identification Number as a part of FATCA regulations by December 31, 2014.
Prior to that, India concluded an 'in substance' agreement on FATCA with the US in April to combat possible tax evasion by Americans through Indian financial entities.
While FATCA became a law way back in 2010, the final regulations were issued for it in January last year and it has come into effect from July after signing of agreements with different countries.
As per the new regulations, all financial institutions in India need to carry out a detailed due diligence on all their clients and report details of their US clients to the US tax department (Internal Revenue Service).
The law aims to check and impose withholding tax on illicit activities of some wealthy individuals who use offshore accounts to evade millions of dollars in taxes.
A non-compliance with FATCA entails 30 per cent withholding tax on certain US source payments.