Indian government to hand over bank deposit information of PIOs, NRIs to US government

The issue of Social Security taxes by NRIs not resolved. 

By Sujeet Rajan

Sujeet-sidebar 150x150NEW YORK: In the latest twist to an ongoing thorny relationship of late that shifts like sand dunes in a desert storm, India will now hand over bank deposit information of all individual Americans – read rich NRIs and PIOs who have stashed a few hundreds of thousands or a few million dollars away in their motherland – and entities and companies owned by them, to the US. In return, the US will disclose to India, bank deposit information of all Indians living in the US – but not of entities and businesses owned by Indians, starting from July 1.

In principle, the treaty between the two countries is to implement with greater effect the Foreign Account Tax Compliance Act (FATCA), which the US has been aggressively pursuing the last few years, to ferret out high net worth tax dodgers, who have offshore accounts.

The usual treatment for individuals who get caught in such a dragnet is financial ruination, with overwhelming compounded back taxes, hefty fines, and lengthy prison terms. It spells the end of the American Dream. Forget about ever enjoying the money stashed away overseas.

The treaty between the US and India is in essence a draft agreement, which needs ratification by the Indian Cabinet for it to start by July 1. With a new government likely to come to the center in India, it remains to be seen if this UPA-agreed upon deal comes into effect or not.

Indian finance ministry officials said today that the two countries have agreed to Model 1 of the FATCA, and not Model 2, from July 1. If implemented by that date, it will come under review next in 2016.

Under the rules of Model 1, all banks and financial institutions in India will report information on US account holders directly to the Indian government, and it in turn will share it with the US authorities.

India staved off the US request for a pact on Model 2, which would have meant that Indian banks and financial institutions would have faced tremendous ‘due diligence’ pressure and would have been forced to report the information directly to US authorities, namely the Internal Revenue Service and the Treasury.

On its part, the US will also implement the rule that if information on offshore accounts and assets by Americans isn’t provided to tax authorities here, Indian foreign financial institutions will withhold tax at 30 per cent on interest payments from account holders in the US. In all likelihood that information will eventually be rerouted to authorities in the US, and worse will follow.

While fighting tax evasion is a welcome move, India’s position on critical matters when it comes to defending its own Diaspora cannot be more self-defeating than this one.

The latest FATCA treaty just underlines – in red markers – how the US has been able to twist India’s arm where it really matters, without having to compromise anything in return. While US implements its rules and regulations with impunity, scores diplomatically on the world stage, India struggles to stay at par. Its stance is more about bravado and bluster than achieving concrete results.

For decades, the Indian community here has been crying hoarse over how NRIs who return back to India after working in the US never get back even a fraction of the Social Security and Medicare taxes they paid as residents. These substantial taxes are accrued from every paycheck or annually – as the cases may be – and is like gifting money to the US, if they are not availed of as Permanent Residents who go on to retire in this country or as Citizens who live to see the day of their pension checks.

Over the years, the cudgels have been taken up by many, including in recent years by Vayalar Ravi, the Union Minister of Overseas Indian Affairs, when he first came to office in 2006. More ministers like Kamal Nath and Anand Sharma have talked about the issue vociferously at community gatherings in the US, when questioned on it. The end result: nothing. How many meetings or even a single meeting have Indian officials had with their US counterparts on this issue? Nobody knows.

The fact is that the UPA government has let down the NRIs on this issue, never made any official statements on this.

The Indian community, represented by some self-styled ‘leaders’ have in recent years given up on this issue as a talking point with visiting Indian officials, embassy and consular officials. Some community leaders who have been clamoring for it for a long time, have themselves retired and are now enjoying the benefits of pensions and government-funded medical care; so why argue against it?

For the middle-aged and younger lot of desis who project themselves as mouthpieces of the community, it’s far easier nowadays to position oneself as self-important and imported Congress or BJP leaders here, give self-titles like ‘President’ of units named after states in India, gloat of long-distance conference calls with party leaders, arrange for video addresses, or conduct meaningless ‘chai pe charchas’. Few care about the real issues that plague the community here.

For India to cave in meekly to the US on giving information on bank deposits is another double whammy for NRIs and PIOs. It may also hit the Indian economy in more ways than one.

While it is not clear on this issue, it is likely that Permanent Residents who have Green Cards will also be equally scrutinized by the US government, and non-compliance on tax issues may even become an impediment for citizenship later on. Those NRIs in the long haul for their Green Cards, face the same deal.

While FATCA ensures that more people in the US will declare their assets overseas, it’s also likely that many wealthy Americans of Indian origin are now going to hastily withdraw their deposits from India, move it to other offshore accounts or tax havens, or invest in real estate or business ventures in the US itself – something which the US has wanted all along, is one of the prime reasons for the aggressive posture on due diligence on foreign banks since recession hit eight years ago.

India can only hope that the record remittances to India registered this year does not tumble come next year because of this tax treaty.

And really, what does the Indian government get out of this? Bank account details of Indians living in the US? How’s that going to help? Go figure.

The Indian Ambassador to the US, S Jaishankar, in an excellent speech at the Harvard Kennedy School last week, pointed out that for the US “maintaining its global dominance is the strategic goal, expressed through the espousal of its values and pursued using the politics of alliances. Where India is concerned, consolidating and building on its hard won independence is the primary objective.”

Jaishankar also spoke about the generous economic assistance over the decades by US to India since its independence, which has formed the basis for the close relationship.

The fact of the matter is that if one were to calculate the total Social Security and Medicare taxes paid by all the NRIs who have not availed of it, apart from fees paid to the Department of Homeland Security – formerly known as the Immigration and Naturalization Services – since the immigration floodgates opened up almost 50 years ago, till date, it might throw up some surprising results. One would have to ponder who has helped whom more.

Jaishankar also astutely observed of the unusual demands that India sometimes have to face from the US: “US policy could be summed up as maintaining India at a certain level, with a willingness to respond to a 911 call. It was not averse to pressing India when larger strategy so demanded.”

The point is once FATCA comes into effect from July 1, the Indian government may as well call 911 in the US from New Delhi, and give out the list of desi tax defaulters.

(Sujeet Rajan is the Editor-in-Chief of The American Bazaar)

 

 

One Comment

  1. This should bilaterally extend to real property as well.

Leave a Comment

Your email address will not be published. Required fields are marked *

*

This site uses Akismet to reduce spam. Learn how your comment data is processed.