business

Updated: Jul 09, 2015 18:36 IST

Under a new US law meant to combat offshore tax dodging by Americans as well as by Indians stashing funds abroad, India and the United States signed a tax information sharing agreement on Thursday.

The agreement aims to close a window for US citizens to avoid tax through financial products like equities, bank accounts and insurance.

In return, New Delhi expects to garner Washington's support to bring back illicit funds stashed by Indians in foreign tax havens and boost revenues by getting information about Indians working in the United States.

The agreement "would enhance tax transparency and eventually bring in higher equity into the direct tax regime which are necessary for a healthy economy," India's revenue secretary Shaktikanta Das said at the signing in New Delhi.

Following his election promise, Prime Minister Narendra Modi has enacted a 'black money' law that foresees tough penalties and a jail term for tax evaders who fail to declare their overseas incomes.

Washington has signed pacts covering more than 80 tax jurisdictions to implement the Foreign Account Tax Compliance Act, or FATCA, requiring financial institutions to share information about Americans' accounts worth more than $50,000.

Last year, Modi joined leaders from the Group of 20 countries in Australia in an agreement for countries to automatically exchange tax information on a reciprocal basis by the end of 2018.

Under the pact, banks, mutual funds, insurance, pension and stock-broking firms will report their American client details to the tax department for sharing with the United States, said an Indian finance ministry official.

Investors will have to provide correct information about their tax residency and financial assets that would be shared with the US tax authorities, he said, requesting anonymity because he was not authorised to speak on the record.

To date, the United States has inter-governmental agreements with more than 110 jurisdictions and is engaged in related discussions with many other jurisdictions, the statement said.