Rule 114F/114G/114H Amended — FATCA & CRS Reporting Tightened

Introduction

The Central Board of Direct Taxes (CBDT) has amended Rules 114F, 114G and 114H of the Income-tax Rules, 1962, strengthening India's framework for FATCA (Foreign Account Tax Compliance Act) and CRS (Common Reporting Standard) reporting. These amendments aim to enhance transparency, improve information exchange with foreign jurisdictions, and prevent tax evasion through overseas financial assets and accounts.

The revised rules increase the compliance responsibility of Reporting Financial Institutions (RFIs) and align India's reporting standards with evolving global requirements.

What are Rules 114F, 114G and 114H?

These rules govern reporting obligations under FATCA and CRS:

• Rule 114F – Definitions and due diligence requirements.
• Rule 114G – Information to be maintained and reported by Reporting Financial Institutions.
• Rule 114H – Procedures and due diligence for identifying reportable accounts.

The recent amendments strengthen these provisions by requiring more robust data collection, verification and reporting.

Key Changes Introduced

1. Enhanced Due Diligence Requirements

Financial institutions will need to perform stricter verification while onboarding customers and reviewing existing accounts.

Example:

A bank opening an account for a non-resident customer may now require additional self-certification and supporting documents to determine the customer's tax residency.

Impact:

• Better identification of reportable accounts.
• Reduced risk of incorrect reporting.

2. More Detailed Information Reporting

Additional information relating to account holders and controlling persons may now be required.

Example:

If an entity account is held by a company, details of beneficial owners and controlling persons may also need to be reported.

Impact:

• Improved transparency.
• Better exchange of information with foreign tax authorities.

3. Strengthened Record-Keeping Requirements

Reporting Financial Institutions are expected to maintain proper records and documentation supporting FATCA and CRS compliance.

Example:

Banks, mutual funds and insurance companies should preserve self-certifications, account statements and due diligence records for future verification.

Impact:

• Better audit trail.
• Reduced compliance disputes.

4. Greater Scrutiny of Cross-Border Financial Transactions

Authorities worldwide are increasingly relying on automatic exchange of information to identify undisclosed assets and offshore income.

Example:

If an Indian resident holds financial accounts in another participating country, details may be shared through the CRS mechanism.

Impact:

• Higher transparency.
• Reduced scope for tax evasion.

5. Increased Responsibility for Reporting Financial Institutions

Banks, NBFCs, mutual funds, custodians and insurance companies will need to strengthen internal systems and compliance mechanisms.

Example:

Financial institutions may need to upgrade KYC processes and employee training programs to ensure proper FATCA and CRS reporting.

Impact:

• More compliance requirements.
• Increased focus on data accuracy.

Practical Implications

For Financial Institutions

✔ Stronger due diligence procedures

✔ Improved customer onboarding process

✔ Additional reporting responsibilities

✔ Better documentation and record management

✔ Need for periodic compliance reviews

For Taxpayers

✔ Greater transparency of overseas financial assets

✔ Higher scrutiny of foreign income and accounts

✔ Importance of accurate self-certification

✔ Reduced possibility of undisclosed foreign assets escaping reporting

What Should Reporting Entities Do?

• Review existing FATCA and CRS procedures.
• Update customer onboarding and KYC documentation.
• Strengthen due diligence and verification processes.
• Maintain proper records and supporting documents.
• Train compliance teams regarding revised requirements.
• Ensure timely and accurate reporting.

Conclusion

The amendments to Rules 114F, 114G and 114H represent another step towards strengthening India's international tax reporting framework. With global tax transparency becoming increasingly important, Reporting Financial Institutions must focus on data accuracy, robust due diligence and timely compliance. Proactive preparation and strong internal controls will help institutions avoid penalties and ensure smooth FATCA and CRS reporting.