Complying with the latest Finance Ministry circular on FATCA, AMFI has asked fund houses to freeze non-FATCA compliant accounts with immediate effect. This means, non-FATCA compliant investors cannot execute fresh mutual fund transactions.
Earlier, the ministry had directed fund houses to comply with FATCA regulations before April 30, 2017.
Foreign Account Tax Compliance Act (FATCA) is an anti-tax evasion law under which fund houses are required to report information on US investors to US IRS (Internal Revenue Service) through CBDT. India agreed ‘in substance’ to FATCA by signing an Intergovernmental Agreement Model 1 (IGA-1) with the US, in effect from July 9, 2015. Simply put, the legislation is meant to prevent wealthy US individuals from parking money overseas to avoid paying taxes.
In a communication sent to fund houses, AMFI has asked them not to entertain any financial service request such as redemption, lump-sum investment, etc. from non-FATCA compliant investors.
AMFI has, however, directed fund houses to allow such investors to continue with their SIP/SWP/STP until expiry. Such investors cannot redeem their mutual fund investments.
Similarly, fund houses can process payments arising out of dividend or maturity of close-end funds, AMFI added.
In addition, AMFI clarified that fund houses can process non-financial service requests such as registration or change in nomination, bank account, mobile number and email address of non-FATCA compliant investors.
Non-FATCA compliant investors can still update their FATCA information through all registrar and transfer agents by submitting a self-declaration form.
Investors who have invested in mutual funds after August 31, 2015 are FATCA compliant since fund houses insist investors submit a self-declaration form before initiating any transaction. The problem is with the accounts opened between July 1, 2014 and August 31, 2015. The move is therefore likely to affect large fund houses (top 15 AMCs in terms of AUM) as they have old assets.
