In today’s interconnected financial world, tax transparency and international cooperation are more important than ever in the fight against tax evasion. To support this, global standards such as the Foreign Account Tax Compliance Act (FATCA) and the Common Reporting Standard (CRS) were established-placing new reporting obligations on financial institutions worldwide.

In India, Form 61B is the key compliance tool that enables Reporting Financial Institutions (RFIs) to submit account information to the Income Tax Department under these international frameworks.

This blog is designed to help financial institutions understand the purpose of Form 61B, who needs to file it, and how it fits into the larger picture of global tax compliance.

Form 61B is a statutory form prescribed under Rule 114G of the Income Tax Rules, 1962. It is used by Indian Reporting Financial Institutions (RFIs) to submit information on reportable accounts under two major global tax compliance regimes:

• FATCA: Foreign Account Tax Compliance Act (United States)
  
• CRS: Common Reporting Standard (OECD Global Initiative)
  

This information is submitted electronically to the Income Tax Department of India, which in turn shares it with the respective foreign tax authorities.

FATCA (Foreign Account Tax Compliance Act) is a U.S. law enacted in 2010 that requires foreign financial institutions to report details of financial accounts held by U.S. citizens, residents, and certain entities controlled by them. India signed an Inter-Governmental Agreement (IGA) with the U.S. to comply with FATCA.

CRS (Common Reporting Standard) was developed by the Organisation for Economic Co-operation and Development (OECD) as a global standard for automatic exchange of financial account information. Over 100 countries, including India, have committed to CRS. It requires financial institutions to report account information of non-residents to their home country tax authorities via local regulators.

Form 61B is essential for enabling:

• Compliance: Ensures Indian institutions comply with FATCA and CRS requirements.
  
• Transparency: Helps curb tax evasion by disclosing foreign-held assets.
  
• Data Exchange: Facilitates international cooperation in tax enforcement.
  

Failure to comply with these reporting requirements can result in significant penalties and reputational risk for financial institutions.

The obligation to file Form 61B applies to Indian entities classified as Reporting Financial Institutions (RFIs) under FATCA and CRS. This generally includes:

• Banks
• Mutual Funds
  
• Insurance Companies
  
• Depository Institutions
  
• Certain Investment Entities
  

These institutions must identify reportable accounts based on due diligence procedures, and then report the relevant information annually.

Under Rule 114F (3), financial institutions are further classified into four categories:

1. CUSTODIAL INSTITUTIONS: Entities holding financial assets on behalf of others and deriving ≥20% income from such activities over a three-year period (e.g., CSDL, NSDL, custodians).
   
2. DEPOSITORY INSTITUTIONS: Entities accepting deposits in the ordinary course of banking (e.g., commercial and savings banks, credit unions).
   
3. INVESTMENT ENTITIES: These either actively manage financial assets for clients or derive primary income from investing/trading in financial assets. Entities that only provide investment advice or execution services (not managing funds) are considered non-reporting.
   
4. SPECIFIED INSURANCE COMPANIES: Insurance companies (or their holding firms) that issue or are liable to pay under Cash Value or Annuity Contracts.

In some cases, institutions may engage in multiple types of activities (e.g., both depository and custodial). Such entities must register under all relevant categories and may need to submit separate Form 61B filings accordingly.

FINANCIAL ACCOUNTS & REPORTING OBLIGATIONS

An RFI must review the financial accounts it maintains to identify whether they are held by reportable persons (non-resident individuals or entities with tax reporting obligations).

A financial account includes:

1. DEPOSITORY ACCOUNTS: Savings, checking, or similar accounts maintained by depository institutions, including amounts held by insurers under interest-paying contracts.
   
2. CUSTODIAL ACCOUNTS: Accounts (excluding insurance or annuity contracts) holding financial assets for another party (e.g., mutual fund units held in demat form).
   
3. EQUITY AND DEBT INTERESTS IN INVESTMENT ENTITIES: If a person holds equity or debt in an investment entity, these are considered financial accounts (except where the entity is only an advisor or manager).
   
4. CASH VALUE INSURANCE CONTRACTS: Insurance contracts with a cash surrender value, especially if held by U.S. reportable persons and exceeding USD 50,000.
   
5. ANNUITY CONTRACTS: Contracts obligating the issuer to make payments based on life expectancy or a set period.
   
   

As per Rule 114G (9) mandates RFIs to submit Form 61B electronically for each reportable account to the Director or Joint Director of Income-tax using a digital signature.

• Due Date: Form 61B must be filed by May 31st following the end of the financial year.
  
• Submission: The form is filed electronically via the Income Tax Department's Reporting Portal.
  
• Corrections: Amendments or corrections to filed data can also be submitted through the same portal.
  

Form 61B is an essential tool for Indian financial institutions to stay compliant with global tax standards like FATCA and CRS. It ensures transparency, helps prevent tax evasion, and enables seamless cooperation between tax authorities worldwide.

For Indian financial institutions, staying on top of the Form 61B filing process is essential to meet regulatory requirements and avoid penalties. With clear steps and deadlines in place, understanding and fulfilling these obligations will help institutions stay compliant while contributing to the broader global effort for tax transparency.

Stay tuned for more insights on tax reporting and global compliance with TaxOSmart!