What is FATCA & CRS? Know the impact of FATCA declaration For NRIs

Aditya (name changed) moved to Chicago in 2016, on a green card since 2020. When his CA in India asked whether he’d filed a FATCA self-declaration with his mutual fund house, he said no, nobody had asked. He assumed FATCA was something his US bank handled, not something that touched his Indian investments at all. It took an AMC compliance notice, years later, to correct that assumption.

FATCA and CRS are not exotic regulations that apply to a handful of ultra-wealthy NRIs. If you’re a US person with any Indian financial account, or a tax resident of any of over 120 other participating countries, one of these two frameworks almost certainly already applies to you, whether you’ve filed the paperwork or not.

Must Read – How NRIs can complete KYC for NRI Mutual Fund

What FATCA Actually Does

The Foreign Account Tax Compliance Act, passed by the US in 2010, requires foreign financial institutions, including Indian banks, mutual fund houses and brokers, to identify accounts held by US persons and report them to the US IRS. India’s RBI and SEBI mandated compliance across the financial sector starting 2014, and the Income Tax Act was amended with rules 114F to 114H and Form 61B to implement it domestically. Indian institutions report to the CBDT, which shares the collated information with the IRS.

US persons holding foreign financial assets above a specified threshold must also separately report those holdings on Form 8938 with their US tax return, this is a US-side obligation that exists independently of what your Indian institution reports. Non-compliant institutions face a 30% withholding penalty on US-source income, which is the enforcement lever that makes FATCA compliance non-negotiable for Indian financial institutions dealing with US clients.

Must Read – NRI Tax in India on Indian Income

The Declaration Requirement Most People Get Backwards

The self-declaration form itself asks for your name, PAN, Indian address, place of birth, nationality, gross annual income, occupation, and whether you’re a tax resident of another country, with that country’s name and Tax ID Number if so. Supporting documents typically required are your PAN card, passport, and Voter ID or Aadhaar.

What FATCA Does Not Do

This needs stating plainly because the confusion around it has caused real, unnecessary harm. FATCA does not prohibit US persons from investing in Indian equities, debt, mutual funds or property. It does not block rental income. It does not stop you from starting a business or entering financial contracts in India. During the early implementation years, 2014 to 2016, widespread miscommunication led many NRIs to consider selling off Indian assets entirely, based on a fear that had no basis in the actual law. FATCA is a reporting and disclosure mechanism, not an investment restriction.

What it does create is friction. Many Indian mutual fund houses and financial institutions historically treated US and Canada-resident clients as higher compliance burden and restricted or declined their business as a result. That landscape has genuinely improved over the years as more AMCs built out FATCA-compliant onboarding, but which specific fund houses currently accept US-resident investors changes periodically, so confirm directly with the AMC rather than relying on a fixed list, since acceptance is an operational decision each institution revisits, not a permanent regulatory bar.

CRS: The Same Idea, Much Wider Net

The Common Reporting Standard, developed by the OECD, extends the same basic logic to residents of participating countries beyond the US. As of the current OECD framework, over 120 jurisdictions have committed to CRS automatic exchange, a substantially larger network than existed when FATCA first launched.

Why the Confusion Persists

Aditya assumed his Indian mutual fund declarations were separate from his US tax life because they felt like two different systems, one run by his Indian bank, the other by the IRS. This is domain separation bias, the tendency to treat systems that operate in different countries and different languages as genuinely unconnected, even when they are explicitly designed to talk to each other. FATCA exists specifically to close that gap. The two systems were never separate. They just felt that way because nobody explained the wiring underneath.

The people who get caught out are rarely trying to hide anything. They simply never realised that a form filled out at an Indian bank counter was, by design, information the IRS would eventually see.

Frequently Asked Questions

Does FATCA stop me from investing in India as a US person?
No. It requires disclosure and reporting, not restriction. You can invest in equities, mutual funds, property and businesses in India as a US person, subject to the same rules any NRI faces.

I live in India now and I’m a resident for Indian tax purposes. Do I still need to declare US residency?
Yes, if you’re a US citizen or green card holder. FATCA tracks citizenship and immigration status, not where you currently live, so the declaration is required regardless of your Indian residential status.

How many countries does CRS cover?
Over 120 jurisdictions currently participate in CRS automatic exchange, a number that continues to grow as more countries commit each year.

Is there a minimum account balance before CRS reporting applies?
No. Unlike FATCA’s roughly USD 50,000 threshold for individual accounts, CRS has no minimum, every reportable account gets disclosed regardless of size.

What happens if I don’t file my FATCA self-declaration?
Non-compliant accounts can face higher default withholding rates or, in persistent cases, account restrictions from the financial institution, since the institution itself faces a 30% withholding penalty on US-source income for non-compliance.

The form at the bank counter and the letter from the IRS were never two separate stories. They were always the same one, told in two languages.

Disclosure done early is paperwork. Disclosure done late is an investigation.