India
This report analyses the implementation of the AEOI Standard in India with respect to the requirements of the AEOI Terms of Reference. It assesses both the legal frameworks put in place to implement the AEOI Standard and the effectiveness of the implementation of the AEOI Standard in practice.
The methodology used for the peer reviews and that therefore underpins this report is outlined in Chapter 2.
Overall findings
AEOI legal framework
India’s legal framework implementing the AEOI Standard is in place but needs improvement in order to be fully consistent with the requirements of the AEOI Terms of Reference. While India’s international legal framework to exchange the information with all of India’s Interested Appropriate Partners (CR2) is consistent with the requirements, its domestic legislative framework requiring Reporting Financial Institutions to conduct the due diligence and reporting procedures (CR1) has deficiencies in areas significant to the proper functioning of the AEOI Standard. More specifically, India’s legislative framework provides for several categories of jurisdiction-specific Non-Reporting Financial Institutions that do not meet the requirements of the AEOI Standard.
Overall determination on the legal framework: In Place But Needs Improvement
Effectiveness of AEOI in practice
India’s implementation of the AEOI Standard is on track with respect to the requirements of the AEOI Terms of Reference to ensure the effectiveness of the AEOI Standard in practice. This includes ensuring Reporting Financial Institutions correctly conduct the due diligence and reporting procedures (CR1) and exchanging the information in an effective and timely manner (CR2). India is encouraged to continue its implementation process accordingly, to ensure its ongoing effectiveness.
Overall rating in relation to the effectiveness in practice: On Track
General context
India commenced exchanges under the AEOI Standard in 2017.
In order to provide for Reporting Financial Institutions to collect and report the information to be exchanged, India:
enacted Section 285BA of the Income-tax Act 1961 and Rules 114F to 114H of the Income-tax Rules, 1962;
issued further guidance, which was amended on 30 July 2020 and is legally binding; and
made reference to the Prevention of Money-laundering (Maintenance of Records) Rules, 2005 for the purposes of the identification of Controlling Persons under the AEOI Standard.
Under this framework Reporting Financial Institutions were required to commence the due diligence procedures in relation to New Accounts from 1 January 2016. With respect to Preexisting Accounts, Reporting Financial Institutions were required to complete the due diligence procedures on High Value Individual Accounts by 31 December 2016 and on Lower Value Individual Accounts and Entity Accounts by 30 June 2017.
Following the initial Global Forum peer review, India amended its legislative framework to address issues identified, effective from 30 July 2020.
With respect to the exchange of information under the AEOI Standard, India is a Party to the Convention on Mutual Administrative Assistance in Tax Matters and activated the associated CRS Multilateral Competent Authority Agreement in time for exchanges in 2017.
Table 1 sets out the number of Financial Institutions in India that reported information on Financial Accounts in 2021 as defined in the AEOI Standard (essentially because they maintained Financial Accounts for Account Holders, or that were related to Controlling Persons, resident in a Reportable Jurisdiction). It also sets out the number of Financial Accounts that they reported in 2021. In this regard, it should be noted that India requires the reporting of Financial Accounts held by all non-residents and some accounts may be required to be reported more than once (e.g. jointly held accounts or accounts with multiple related Controlling Persons), which is reflected in the figures below. These figures provide key contextual information to the development and implementation of India’s administrative compliance strategy, which is analysed in the subsequent sections of this report.
Table 2 sets out the number of exchange partners to which information was successfully sent by India in the past few years (including where the necessary frameworks were in place, containing an obligation on Reporting Financial Institutions to report information, but no relevant Reportable Accounts were identified). These figures provide key contextual information in relation to India’s exchanges in practice, which is also analysed in subsequent sections of this report.
In order to provide for the effective implementation of the AEOI Standard, in India:
the Central Board of Direct Taxes (CBDT, the tax authority) has the responsibility to ensure the effective implementation of the due diligence and reporting obligations by Reporting Financial Institutions and for exchanging the information with India’s exchange partners;
technical solutions necessary to receive and validate the information reported by Reporting Financial Institutions were put in place with a Reporting Portal which allows Reporting Financial Institutions to submit information in XML format which is then subject to validation to ensure the information is in line with the requirements; and
the Common Transmission System (CTS) is used for the exchange of the information, along with the associated file preparation and encryption requirements.
It should be noted that the review of India’s legal frameworks implementing the AEOI Standard concluded with the determination that India’s domestic legal framework is In Place But Needs Improvement and its international legal framework is In Place. This has been taken into account when reviewing the effectiveness of India’s implementation of the AEOI Standard in practice.
Findings and conclusions on the legal frameworks
The detailed findings and conclusions on the AEOI legal frameworks for India are below, organised per Core Requirement (CR) and then per sub-requirement (SR) as extracted from the AEOI Terms of Reference (see Annex C).
CR1 Domestic legal framework: Jurisdictions should have a domestic legislative framework in place that requires all Reporting Financial Institutions to conduct the due diligence and reporting procedures in the CRS, and that provides for the effective implementation of the CRS as set out therein.
Determination: In Place But Needs Improvement
India’s domestic legislative framework is in place and contains many of the key aspects of the CRS and its Commentary requiring Reporting Financial Institutions to conduct the due diligence and reporting procedures but it needs improvement in relation to the scope of Reporting Financial Institutions required to report information (SR 1.1). More specifically, India provides for six categories of jurisdiction-specific Non-Reporting Financial Institutions that are not in line with the requirements.
SR 1.1 Jurisdictions should define the scope of Reporting Financial Institutions consistently with the CRS.
India has defined the scope of Reporting Financial Institutions in its domestic legislative framework in a manner that is largely consistent with the CRS and its Commentary. However, deficiencies have been identified. Most significantly, India has provided for four categories of jurisdiction-specific Non-Reporting Financial Institution that do not correspond to any of the categories of Non-Reporting Financial Institutions foreseen in the AEOI Standard. The definition of Reporting Financial Institutions, including the provision of Non-Reporting Financial Institutions, is material to the proper functioning of the AEOI Standard.
India should amend its domestic legislative framework to remove four categories from its jurisdiction-specific list of Non-Reporting Financial Institutions as they do not correspond to any of the categories of Non-Reporting Financial Institution foreseen in the AEOI Standard. The entries are: i) Financial Institutions with Low Value Accounts; ii) Local Banks; iii) Treaty Qualified Retirement Funds and iv) Financial Institutions with a local client base.
India should amend its domestic legislative framework to remove two further categories from its jurisdiction-specific list of Non-Reporting Financial Institutions as they are Non-Financial Entities and should therefore be treated as such under the AEOI Standard. The categories are: (i) the Gratuity Fund and (ii) the Non-Public Fund of the Armed Forces.
SR 1.2 Jurisdictions should define the scope of Financial Accounts and Reportable Accounts consistently with the CRS and incorporate the due diligence procedures to identify them.
India has defined the scope of the Financial Accounts that are required to be reported in its domestic legislative framework and incorporated the due diligence procedures that must be applied to identify them in accordance with the CRS and its Commentary.
SR 1.3 Jurisdictions should incorporate the reporting requirements contained in Section I of the CRS into their domestic legislative framework.
India has incorporated the reporting requirements in its domestic legislative framework in accordance with the CRS and its Commentary.
SR 1.4 Jurisdictions should have a legislative framework in place that allows for the enforcement of the requirements of the CRS in practice.
India has a legislative framework in place to enforce the requirements in accordance with the CRS and its Commentary.
CR2 International legal framework: Jurisdictions should have exchange relationships in effect with all Interested Appropriate Partners as committed to and that provide for the exchange of information in accordance with the Model CAA.
India’s international legal framework to exchange the information is in place, is consistent with the Model CAA and its Commentary and provides for exchange with all of India’s Interested Appropriate Partners (i.e. all jurisdictions that are interested in receiving information from India and that meet the required standard in relation to confidentiality and data safeguards) (SRs 2.1 – 2.3).
SR 2.1 Jurisdictions should have exchange agreements in effect with all Interested Appropriate Partners that permit the automatic exchange of CRS information.
India has exchange agreements that permit the automatic exchange of CRS information in effect with all its Interested Appropriate Partners.
SR 2.2 Such an exchange agreement should be put in place without undue delay, following the receipt of an expression of interest from an Interested Appropriate Partner.
India put in place its exchange agreements without undue delay.
SR 2.3 Jurisdictions should ensure that the exchange agreements in effect provide for the exchange of information in accordance with the requirements of the Model CAA.
India’s exchange agreements provide for the exchange of information in accordance with the requirements of the Model CAA.
Findings and conclusions in relation to effectiveness in practice
The detailed findings and conclusions in relation to effectiveness in practice of AEOI for India are below, organised per Core Requirement (CR) and then per sub-requirement (SR) as extracted from the AEOI Terms of Reference (see Annex C).
CR1 Effectiveness in practice: Jurisdictions should ensure that in practice Reporting Financial Institutions correctly implement the due diligence and reporting procedures, which includes a requirement for jurisdictions to have in place an administrative framework to ensure the effective implementation of the CRS.
India’s implementation of the AEOI Standard is on track with respect to ensuring that Reporting Financial Institutions are correctly conducting the due diligence and reporting procedures and are therefore reporting complete and accurate information. This includes ensuring effectiveness in a domestic context, such as through having an effective administrative compliance framework and related procedures (SR 1.5), and collaborating with exchange partners to ensure effectiveness (SR 1.6). India is encouraged to continue its implementation process to ensure its ongoing effectiveness.
SR 1.5 Jurisdictions should ensure that in practice Reporting Financial Institutions identify the Financial Accounts they maintain, identify the Reportable Accounts among those Financial Accounts, as well as their Account Holders, and where relevant Controlling Persons, by correctly conducting the due diligence procedures and collect and report the required information with respect to each Reportable Account. This includes having in place:
an effective administrative compliance framework to ensure the effective implementation of, and compliance with, the CRS. This framework should:
be based on a strategy that facilitates compliance by Reporting Financial Institutions and which is informed by a risk assessment in respect of the effective implementation of the CRS that takes into account relevant information sources (including third party sources);
include procedures to ensure that Financial Institutions correctly apply the definitions of Reporting Financial Institutions and Non-Reporting Financial Institutions;
include procedures to periodically verify Reporting Financial Institutions’ compliance, conducted by authorities that have adequate powers with respect to the reviewed Reporting Financial Institutions, with procedures to access the records they maintain; and
effective procedures to ensure that Financial Institutions, persons or intermediaries do not circumvent the due diligence and reporting procedures;
effective enforcement mechanisms to address non-compliance by Reporting Financial Institutions;
strong measures to ensure that valid self-certifications are always obtained for New Accounts;
effective procedures to ensure that each, or each type of, jurisdiction-specific Non-Reporting Financial Institution and Excluded Account continue to present a low risk of being used to evade tax; and
effective procedures to follow up with a Reporting Financial Institution when undocumented accounts are reported in order to establish the reasons why such information is being reported.
In order to ensure that Reporting Financial Institutions correctly conduct the due diligence and reporting procedures, India implemented all of the requirements in accordance with expectations. The key findings were as follows:
India implemented an overarching strategy to ensure compliance with the AEOI Standard developed after conducting a risk assessment that took into account a range of relevant information sources, such as compliance information obtained from the AML regulator and analysis undertaken using India’s Business Intelligence Dashboard. India’s compliance strategy facilitates compliance and incorporates a credible approach to enforcement. India intends to keep its compliance strategy and risk assessment under review to ensure its effectiveness on an ongoing basis.
India has worked effectively to understand its population of Financial Institutions, including relevant non-regulated entities, utilising various relevant information sources, such as lists of regulated entities, the Foreign Financial Institution list for FATCA purposes, and data obtained from the income tax database. India is taking action to ensure that Reporting Financial Institutions are classifying themselves correctly under its domestic rules and reporting information as required. India intends to keep its understanding of its Financial Institution population up to date on a routine basis.
The institution responsible for implementing India’s compliance strategy appears to have the necessary powers and resources to discharge its functions. With respect to resourcing, India utilises existing resource across various teams to monitor and ensure compliance by Reporting Financial Institutions, which have access to IT systems and tools to conduct risk assessments such as Data Quality Reports based on the information reported. Overall, India appears to have effectively implemented an operational plan to verify compliance with the requirements, incorporating appropriate compliance activities.
It appears that India effectively enforces the requirements, having conducted desk-based checks and onsite audits which include the inspection of records of Reporting Financial Institutions and the application of dissuasive penalties and sanctions for non-compliance. It also appears that India is ready to take effective action to address circumvention of the requirements if such circumvention is detected, and that action is being taken to ensure self-certifications are obtained as required and to follow up on undocumented accounts.
India will also keep its jurisdiction-specific lists of Non-Reporting Financial Institutions and Excluded Accounts under review to ensure they continue to pose a low risk of being used for tax evasion purposes.
India has six categories of Non-Reporting Financial Institution, which have been recommended to be removed from its jurisdiction-specific list of Non-Reporting Financial Institutions.
Table 3 provides a summary of the specific activities undertaken, or that are planned to be undertaken, in relation to each of the key parts of the framework described above.
In terms of the Financial Account information collected and sent by India, it was found to include a lower proportion of Tax Identification Numbers with respect to the individuals associated with the accounts when compared to most other jurisdictions. Furthermore, while the collection and reporting of dates of birth is generally higher across jurisdictions, India nevertheless reported a lower rate of collection of dates of birth when compared to other jurisdictions. These are key data points for exchange partners to effectively utilise the information. Information provided by India also showed a higher number of undocumented accounts reported by its Reporting Financial Institutions when compared to other jurisdictions, which should only occur when it is not possible for the Reporting Financial Institutions to identify whether the accounts are held by Reportable Persons. However, the number of undocumented accounts has reduced over time. Follow-up discussions confirmed that India is aware of these issues is seeking to improve the situation.
Feedback from India’s exchange partners indicated that, compared to what they generally experience when seeking to match information received from their exchange partners with their taxpayer database, they achieved a much lower level of success when seeking to match information received from India. Furthermore, six exchange partners highlighted issues with respect to the information received, such as incorrect reporting in relation to the names and addresses of account holders, and incorrect account balances. Follow-up discussions confirmed that India is aware of these issues is seeking to improve the situation.
Based on these findings it was concluded that, overall, India is meeting expectations in ensuring that Reporting Financial Institutions correctly conduct the due diligence and reporting procedures, including by having in place the required administrative compliance framework and related procedures. It was also noted that there is room for improvement with respect to continuing to address the issues raised by exchange partners. India is therefore encouraged to continue its implementation process accordingly, including by addressing the recommendation made.
India should continue to address the issues raised by its exchange partners.
SR 1.6 Jurisdictions should collaborate on compliance and enforcement. This requires jurisdictions to:
use all appropriate measures available under the jurisdiction’s domestic law to address errors or non-compliance notified to the jurisdiction by an exchange partner; and
have in place effective procedures to notify an exchange partner of errors that may have led to incomplete or incorrect information reporting or non-compliance with the due diligence or reporting procedures by a Reporting Financial Institution in the jurisdiction of the exchange partner.
In order to collaborate on compliance and enforcement, India implemented all of the requirements in relation to issues notified to them (i.e. under Section 4 of the MCAA or equivalent) in accordance with expectations. In particular, India received notifications from three partners (representing 4% of its partners) and successfully processed them in a timely manner, resolving the issues raised. India also notifies its partners effectively of errors or suspected non-compliance it identifies when utilising the information received.
Based on these findings it was concluded that India is fully meeting expectations in relation to collaborating with its exchange partners to ensure that Reporting Financial Institutions correctly conduct the due diligence and reporting procedures. India is encouraged to continue its implementation process accordingly, to ensure its ongoing effectiveness.
CR2 Effectiveness in practice: Jurisdictions should exchange the information effectively in practice, in a timely manner, including by sorting, preparing, validating and transmitting it in accordance with the AEOI Standard.
India’s implementation of the AEOI Standard is on track with respect to exchanging the information effectively in practice, including in relation to sorting, preparing and validating the information (SR 2.4), correctly transmitting the information in a timely manner (SRs 2.5 – 2.8) and providing corrections, amendments or additions to the information (SR 2.9). India is encouraged to continue its implementation process accordingly, to ensure its ongoing effectiveness.
SR 2.4 Jurisdictions should sort, prepare and validate the information in accordance with the CRS XML Schema and the associated requirements in the CRS XML Schema User Guide and the File Error and Correction-related validations in the Status Message User Guide (i.e. the 50000 and 80000 range).
Feedback from India’s exchange partners did not raise any specific concerns with respect to their ability to process the information received from India and therefore with respect to India’s implementation of these requirements. More generally, one of India’s exchange partners reported rejecting more than 25% of the files received, and did not report rejecting more than 50% of files received, due to the technical requirements not being met. This is a relatively low amount when compared to other jurisdictions.
Based on these findings it was concluded that India is fully meeting expectations in relation to sorting, preparing and validating the information. India is encouraged to continue its implementation process accordingly, to ensure its ongoing effectiveness.
SR 2.5 Jurisdictions should agree and use, with each exchange partner, transmission methods that meet appropriate minimum standards to ensure the confidentiality and integrity of the data throughout the transmission, including its encryption to a minimum secure standard.
In order to put in place an agreed transmission method that meets appropriate minimum standards in confidentiality, integrity of the data and encryption for use with each of its exchange partners, India linked to the CTS.
Based on these findings it was concluded that India is fully meeting expectations in relation to agreeing and using appropriate transmission methods with each of its partners. India is encouraged to continue to ensure the ongoing effectiveness of its implementation.
SR 2.6 Jurisdictions should carry out all exchanges annually within nine months of the end of the calendar year to which the information relates.
Feedback from India’s exchange partners did not raise any concerns with respect to timeliness of the exchanges by India and therefore with respect to India’s implementation of this requirement.
Based on these findings it was concluded that India is fully meeting expectations in relation to exchanging information in a timely manner. India is encouraged to continue to ensure the ongoing effectiveness of its implementation.
SR 2.7 Jurisdictions should send the information in accordance with the agreed transmission methods and encryption standards.
Feedback from India’s exchange partners did not raise any concerns with respect to India’s use of the agreed transmission methods and therefore with India’s implementation of this requirement.
Based on these findings it was concluded that India is fully meeting expectations in relation to sending the information in accordance with the agreed transmission methods and encryption standards. India is encouraged to continue to ensure the ongoing effectiveness of its implementation.
SR 2.8 Jurisdictions should have the systems in place to receive information and, once it has been received, should send a status message to the sending jurisdictions in accordance with the CRS Status Message XML Schema and the related User Guide.
Ten exchange partners highlighted delays in the sending of status messages by India, representing 10% of its partners. This represents a relatively high proportion of partners. Some of these delays were due to a one-off technical issue. It was noted that India appears to be successfully addressing the issues to ensure that status messages are sent in accordance with the requirements.
Based on these findings it was concluded that India is partially meeting expectations in relation to the receipt of the information. However, significant issues have been identified, including with respect to sending status messages in a timely manner in accordance with the requirements. India should continue its implementation process to ensure its effectiveness, including by addressing the recommendation made.
India should ensure that it sends Status Messages to all of its exchange partners in a timely manner.
SR 2.9 Jurisdictions should respond to a notification from an exchange partner as referred to in Section 4 of the Model CAA (which may include Status Messages) in accordance with the timelines set out in the Commentary to Section 4 of the Model CAA. In all other cases, jurisdictions should send corrected, amended or additional information received from a Reporting Financial Institution as soon as possible after it has been received.
India appears has responded to notifications and provided corrected, amended or additional information in a timely manner and no such concerns were raised by India’s exchange partners and therefore with respect to India’s implementation of these requirements.
Based on these findings it was concluded that India is fully meeting expectations in relation to responding to notifications from exchange partners and the sending of corrected, amended or additional information. India is encouraged to continue to ensure the ongoing effectiveness of its implementation.