Foreign Account Tax Compliance Act (FATCA)

Foreign Account Tax Compliance Act (FATCA) – The Foreign Account Tax Compliance Act (FATCA) is a United States federal law aimed at preventing tax evasion by U.S. taxpayers holding financial assets outside the United States. Under FATCA, foreign financial institutions are required to report information about financial accounts held by U.S. citizens or residents to the U.S. Internal Revenue Service (IRS). India has implemented FATCA through an agreement with the U.S., requiring Indian banks and financial institutions to report such accounts of U.S. persons to the Indian tax authorities, which then share the information with the IRS. The Assessment Year (AY) is the year in which the income earned during the previous Financial Year (FY) is assessed and taxed in India.

Example: Income earned abroad by a U.S. citizen residing in India during FY 2022–23 is reported and assessed in AY 2023–24, following both domestic tax laws and FATCA compliance requirements.