Under the pact, foreign financial institutions in the U.S. will have to provide information about Indian account holders to the U.S. Internal Revenue Service.

In a step towards curbing overseas tax evasion and black money, India and the U.S. signed an inter-governmental agreement to implement the Foreign Account Tax Compliance Act (FATCA) here on Thursday.

The agreement, signed by Revenue Secretary Shaktikanta Das and U.S. Ambassador to India Richard Verma, makes it obligatory on the part of the two nations to exchange information on offshore accounts of each other’s citizens in their respective territories.

“Signing the agreement with the US to implement FATCA is a very important step to tackle offshore tax evasion,” Mr. Das said. “It is hoped that the exchange of information on an automatic basis would deter tax offenders.”

Mr. Verma said: “The signing of this agreement is an important step forward to combat tax evasion.”

U.S.-India FATCA scheduled to kick in on September 30

Under FATCA, foreign financial institutions in the U.S. will have to provide information about Indian account holders to the U.S. government’s Internal Revenue Service (IRS), which will forward the information to the Indian government.

The Indian government will provide similar information to the IRS. This automatic exchange of information is scheduled to begin on September 30.

For example, the State Bank of India will have to provide information regarding the investments by any U.S. citizen, even NRIs, to the Indian revenue authorities in a prescribed format regularly. The Indian government will then forward that information to the IRS.

The government in December got the go-ahead of the Special Investigation Team on black money to sign international treaties that included confidentiality clauses, an issue that had until then prevented India from agreeing to FATCA.

Last month, India joined 59 countries in the Multilateral Competent Authority Agreement on the Automatic Exchange of Financial Account Information. This agreement obliges signatories to exchange a wide range of financial information among themselves periodically and automatically.

U.S. in talks with other nations

The U.S. government enacted FATCA in 2010 to obtain information on accounts held by US taxpayers in other countries. As of now, the U.S. has such agreements with more than 110 jurisdictions and is engaged in related discussions with many other jurisdictions.

Financial institutions such as banks, brokerages or mutual funds that do not comply with this agreement will face a 30 per cent withholding tax on all payments from the U.S.