The National Pension System (NPS) is a government-initiated scheme providing retirement benefits to Indian citizens. NPS allows regular contributions during working years to ensure financial security post-retirement. If you are between 18 and 70 years, you are eligible to open an NPS Account.
If you are an Non-resident Indian (NRI) or Person of Indian Origin NPS account holders must declare their tax residency status to ensure compliance and transparency, under international tax laws like FATCA or The Foreign Account Tax Compliance Act. The National Securities Depository Limited (NSDL) allows all NPS members to amend their FATCA self-certification online.
What is FATCA?
The Foreign Account Tax Compliance Act is a US law to prevent tax evasion by US citizens using foreign accounts. In India, it applies to all NRIs and PIOs working in the US. If you fall under this category, you need to disclose Indian investments like PPF, NPS, Fixed Deposits, equities, Mutual Funds and capital gains under FATCA. The Union Budget 2023 proposed a ₹5,000 penalty for false FATCA / CRS self-certifications.
Why is self-certification needed?
Self-certification is necessary to determine your tax residency status for FATCA compliance. Failure to comply can lead to:
- Account closure: Non-compliance may result in the closure of foreign financial accounts or restrictions on opening new accounts.
- Financial penalties: If you fail to declare your FATCA status, you may face penalties imposed by the government.
- Limited banking services: It can restrict access to international banking services and investments.
- Legal implications: There could be legal repercussions for not adhering to international tax reporting requirements.
How to declare FATCA in your NPS Account?
- Access your NPS Account through the official NSDL website, using your credentials.
- Once logged in, look for the 'FATCA compliance' section from the options on the left.
- Enter your Permanent Retirement Account Number (PRAN) and click submit.
- Fill out the FATCA declaration form with information such as your full name, PAN, residential address, nationality, date of birth, occupation and income.
If you are not a resident of India, you will also need to provide your Tax Residency Number. Click submit.
- You will then need to sign the declaration and authorisation by checking the box.
- A one-time password (OTP) will be sent to your registered mobile number. You will need to enter this OTP to complete the NPS FATCA self-declaration process.
- Once you have entered the OTP, the screen will display an acknowledgement of your FATCA certification. Save the acknowledgement number for your records.
Also Read: Advantages and disadvantages of NPS
Conclusion
Declaring FATCA in your NPS Account is a straightforward process, and it's essential for compliance and avoiding any legal complications. These simple steps can ensure that your NPS investments are following international tax laws. Stay informed and proactive in managing your NPS Account to maximise your retirement savings while adhering to FATCA requirements.
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision
