TMI BlogDefinitionsX X X X Extracts X X X X X X X X Extracts X X X X ..... avoiding reporting in accordance with rule 114G and, in case of a U.S. reportable account, if the value of debt or equity interest is determined, directly indirectly, primarily by reference to assets that give rise U.S. source with holdable payments; and (v) any cash value insurance contract and any annuity contract issued or maintained by a financial institution, other than a non-investment-linked, non-transferable immediate life annuity that is issued to an individual and monetises a pension or disability benefit provided under an account that is an excluded account. Explanation.- For the purposes of this clause,- (a) depository account includes any commercial, checking, savings, time, or thrift account, or an account that is evidenced by a certificate of deposit, thrift certificate, investment certificate, certificate of indebtedness, or other similar instrument maintained by a financial institution in the ordinary course of a banking or similar business and also an amount held by an insurance company pursuant to a guaranteed investment contract or similar agreement to pay or credit interest thereon; (b) custodial account means an account (other than an insuran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... providing indemnification of an economic loss incurred upon the occurrence of the event insured against; or (C) as a refund of a previously paid premium (less cost of insurance charges whether or not actually imposed) under an insurance contract (other than a life insurance contract or an annuity contract) due to cancellation or termination of the contract, decrease in risk exposure during the effective period of the contract, or arising from the correction of a posting or similar error with regard to the premium for the contract; or (D) as a policyholder dividend (other than a termination dividend) provided that the dividend relates to an insurance contract under which the only benefits payable are described 4 [ in sub-clause (B) ]; or (E) as a return of an advance premium or premium deposit for an insurance contract for which the premium is payable at least annually if the amount of the advance premium or premium deposit does not exceed the next annual premium which will be payable under the contract: Provided that the provisions contained in sub-clause (A) and sub-clause (E) shall not apply in case of a U.S. reportable account; (h) excluded account means,- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; (C) withdrawals are conditioned on meeting specific criteria related to the purpose of the investment or savings account (for example, the provision of educational or medical benefits), or penalties apply to withdrawals made before such criteria are met; and (D) annual contributions are limited to an amount equivalent to fifty thousand U.S. dollars or less, applying the rules specified in clause (c) of sub-rule (7) of rule 114H for account aggregation and currency translation. Explanation.- A financial account that otherwise satisfies the requirements of item (D) will not fail to satisfy such requirements solely because such financial account may receive assets or funds transferred from one or more financial accounts that meet the requirements of 6 [sub-clauses (i) or (ii) or from one or more retirement or pension funds that meets with the requirements of clauses (E), (F) or (G) of Explanation to clause (5)] of this rule; (iii) an account established under the Senior Citizens Savings Scheme Rules, 2004 made under the Government Savings Banks Act, 1873 (5 of 1873). (iv) a life insurance contract with a coverage period that will end before the insured individual att ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... referred to in sub-clause (vii); (C) an obligation of a financial institution servicing a loan secured by real property to set aside a portion of a payment solely to facilitate the payment of taxes or insurance related to the real property at a later time; (D) an obligation of a financial institution solely to facilitate the payment of taxes at a later time; (vii) in the case of an account other than a U.S. reportable account, a depository account that satisfies the following requirements, namely:- (A) the account exists solely because a customer makes a payment in excess of a balance due with respect to a credit card or other revolving credit facility and the overpayment is not immediately returned to the customer; and (B) beginning on or before the 31st December, 2015, the financial institution implements its policies and procedures either to prevent a customer from making an overpayment in excess of an amount equivalent to fifty thousand U.S. dollars, or to ensure that any customer overpayment in excess of an amount equivalent to fifty thousand U.S. dollars is refunded to the customer within sixty days, in each case applying the rules specified in clause (c) of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her persons; or (B) the gross income of which is primarily attributable to investing, reinvesting, or trading in financial assets, if the entity is managed by another entity that is a depository institution, a custodial institution, a specified insurance company, or an investment entity mentioned in sub-clause (A) of this clause. Explanation 1.- An entity is treated as primarily conducting as a business one or more of the activities described in sub-clause (A) of this clause, or an entity's gross income is primarily attributable to investing, reinvesting, or trading in financial assets for purposes of sub-clause (B) of this clause, if the entity's gross income attributable to the relevant activities equals or exceeds fifty per cent. of the gross income of the entity during the shorter of the three-year period ending on 31st March of the year preceding the year in which the determination is made or the period during which the entity has been in existence. Explanation 2.- The term investment entity shall not include an entity that is an active non-financial entity merely because it meets any of the criteria provided in sub-clauses (iv), (v), (vi) or (vii) of clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to such entity) or a financial institution referred to in sub-clauses (a) to (c); (e) a qualified credit card issuer; (f) an investment entity established in India that is a financial institution only because it,- (I) renders investment advice to, and acts on behalf of; or (II) manages portfolios for, and acts on behalf of; or (III) executes trades on behalf of, a customer for the purposes of investing, managing, or administering funds or securities deposited in the name of the customer with a financial institution other than a non-participating financial institution; (g) an exempt collective investment vehicle; (h) a trust established under any law for the time being in force to the extent that the trustee of the trust is a reporting financial institution and reports all information required to be reported under rule 114G with respect to all reportable accounts of the trust; 7 [ (i) a financial institution with a local client base, in case of any U.S. reportable account; (j) a local bank, in case of any U.S. reportable account; (k) a financial institution with only low value accounts, in case of any U.S. reportable account; ] (l) sponsored ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s income inuring to the benefit of any private person; and (c) the entity's assets vest in one or more Governmental entities upon dissolution: Provided further that the income does not inure to the benefit of private persons if such persons are the intended beneficiaries of a Governmental programme, and the programme activities are performed for the general public with respect to the common welfare or relate to the administration of a Department of Government: Provided also that income is considered to inure to the benefit of private persons if the income is derived from Governmental entity engaged in a commercial business, such as a commercial banking business, which provides financial services to private persons; (B) International Organisation means any international organization or wholly owned agency or instrumentality thereof including any inter-Governmental organisation,- (a) that is comprised primarily of Governments; (b) that has in effect a headquarters or substantially similar agreement with India; and (c) the income of which does not inure to the benefit of private persons; (C) Central Bank means a bank that is by law or Government san ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... up contributions) by employees to the fund are limited by reference to earned income of the employee or may not exceed an amount equivalent to fifty thousand U.S. dollars annually, applying the procedures set forth in clause (c) of sub-rule (7) of rule 114H for account aggregation and currency translation; (F) Narrow Participation Retirement Fund means a fund established to provide retirement, disability, or death benefits to beneficiaries who are current or former employees (or persons nominated by such employees) of one or more employers in consideration for services rendered: Provided that,- (i) the fund has less than fifty participants; (ii) the fund is sponsored by one or more employers who are not investment entities or passive non-financial entities; (iii) the employee and employer contributions to the fund [other than transfer of assets from retirement and pension accounts referred to in sub-clause (i) of clause (h) of Explanation to clause (1)] are limited by reference to earned income and compensation of the employee, respectively; (iv) participants who are not residents in India are not entitled to more than twenty per cent of the fund's assets; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thousand U.S. dollars annually, applying the procedures set forth in clause (c) of sub-rule (7) of rule 114H for account aggregation and currency translation; (L) qualified credit card issuer means a financial institution satisfying the following requirements, namely:- (i) it is a financial institution only because it is an issuer of credit cards and accepts deposits only when a customer makes a payment in excess of a balance due with respect to the card and the overpayment is not immediately returned to the customer; and (ii) beginning on or before the 1st July, 2014, the financial institution implements policies and procedures either to prevent a customer from making an overpayment in excess of an amount equivalent to fifty thousand U.S. dollars or to ensure that any customer overpayment in excess of an amount equivalent to fifty thousand U.S. dollars is refunded to the customer within sixty days, in each case applying the rules set forth in clause (c) of sub-rule (7) of rule 114H for account aggregation and currency translation. Explanation.-For the purpose of this sub-clause, a customer overpayment does not refer to credit balances to the extent of disputed charge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts or services to non-residents, and does not otherwise target or solicit customers or account holders who are resident of any country or territory outside India for tax purposes; or (b) advertises in print media or on a radio or television station which is distributed or aired primarily within India but is also incidentally distributed or aired in other countries, provided that the advertisement does not specifically indicate that the financial institution provides financial accounts or services to non-residents, and does not otherwise target or solicit customers or account holders who are resident of any country or territory outside India for tax purposes; (iv) the financial institution is required under any law for the time being in force to identify resident account holders for purposes of either information reporting or withholding of tax with respect to financial accounts held by residents or for purposes of satisfying the due diligence requirements under the Prevention of Money-laundering Act, 2002 (15 of 2003); (v) at least ninety eight per cent. of the financial accounts by value maintained by the financial institution are held by residents; (vi) beginning on o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r a credit union or similar cooperative credit organisation which is operated without profit; (ii) the business of the financial institution consists primarily of receiving deposits from and making loans to, with respect to a bank, unrelated retail customers and, with respect to a credit union or similar cooperative credit organisation, members, provided that no member has a greater than five per cent. interest in such credit union or cooperative credit organisation; (iii) the financial institution satisfies the requirements set forth in sub-clauses (ii) and (iii) of clause (N), provided that, in addition to the limitations on the website referred to in sub-clause (iii) of clause (N), the website does not permit the opening of a financial account; (iv) the financial institution does not have more than an amount equivalent to one hundred seventy-five million U.S. dollars in assets on its balance sheet, and the financial institution and any related entity, taken together, does not have more than an amount equivalent to five hundred million U.S. dollars in total assets on its consolidated or combined balance sheets; and (v) any related entity must be incorporated or organi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... institution; (ii) a financial institution is a sponsored controlled foreign corporation if- (a) the financial institution is a controlled foreign corporation established under any law for the time being in force in India that is not a qualified intermediary (being an intermediary which is a party to a withholding agreement with the United States of America), withholding foreign partnership, or withholding foreign trust; (b) the financial institution is wholly owned, directly or indirectly, by a reporting U.S. financial institution referred to in Article 1 of the FATCA agreement that agrees to act, or requires an affiliate of the financial institution to act, as a sponsoring entity for the financial institution; and (c) the financial institution shares a common electronic account system with the sponsoring entity that enables the sponsoring entity to identify all account holders and payees of the financial institution and to access all account and customer information maintained by the financial institution including, but not limited to, customer identification information, customer documentation, account balance, and all payments made to the account holder or payee, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been required to perform if it were a reporting financial institution; (iii) the financial institution does not act as an investment vehicle for unrelated parties; (iv) twenty or less than twenty individuals own all the debt interests and equity interests in the financial institution (other than debt interests owned by participating foreign financial institution defined in Annex II of the FATCA agreement and non-reporting financial institutions and equity interests owned by an entity if that entity owns hundred per cent. of the equity interests in the financial institution and is itself a sponsored financial institution described in this clause); and (v) the sponsoring entity complies with the following requirements, namely:- (a) it has been registered as a sponsoring entity in terms of the Foreign Account Tax Compliance Act of the United States of America; (b) the sponsoring entity agrees to perform, on behalf of the financial institution, all due diligence, withholding, reporting, and other requirements that the financial institution would have been required to perform if it were a reporting financial institution and retains documentation collected with respect to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hold interests in those companies as capital assets for investment purposes; or (v) the entity is not yet operating a business and has no prior operating history, but is investing capital into assets with the intent to operate a business other than that of a financial institution, provided that the entity shall not qualify for this exception after the date that is twenty four months after the date of the initial organisation of the entity; or (vi) the entity was not a financial institution in the past five years, and is in the process of liquidating its assets or is reorganising with intent to continue or recommence operations in a business other than that of a financial institution; or (vii) the entity primarily engages in financing and hedging transactions with, or for, related entities which are not financial institutions, and does not provide financing or hedging services to any entity which is not a related entity, provided that the group of any such related entities is primarily engaged in a business other than that of a financial institution; or (viii) the entity fulfils all of the following requirements, namely:- (a) it is established and operated in India e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 24th January, 2013 by the Securities and Exchange Board of India; or (iii) IRDA/SDD/GDL/CIR/019/02/2013, issued on the 4th February, 2013 by the Insurance Regulatory and Development Authority. Explanation 2.- In the case of a trust, the controlling person means the settlor, the trustees, the protector (if any), the beneficiaries or class of beneficiaries, and any other natural person exercising ultimate effective control over the trust, and in the case of a legal arrangement other than a trust, the said expression means the person in equivalent or similar position; (C) non-financial entity means any entity that is not a financial institution; (D) passive non-financial entity means,- (i) any non-financial entity which is not an active non-financial entity; or (ii) an investment entity described in sub-clause (B) of clause (c) of the Explanation to 2 [ clause (3), which is not located in any of the jurisdictions specified by the Central Board of Direct Taxes in this behalf ]; or 3 [(iii) not a withholding foreign partnership or a withholding foreign trust; ] (E) an entity is a related entity of another entity if either entity controls the other entit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or territory; (9) specified U.S. person means a U.S. Person, other than the persons referred to in sub-clauses (i) to (xiii) of clause (ff) of Article 1 of the FATCA agreement; (10) U.S. person means,- (a) an individual, being a citizen or resident of the United States of America ; (b) a partnership or corporation organized in the United States of America or under the laws of the United States of America or any State thereof; (c) a trust if,- (i) a court within the United States of America would have authority under applicable law to render orders or judgments concerning substantially all issues regarding administration of the trust; and (ii) one or more U.S. persons have the authority to control all substantial decisions of the trust; or (d) an estate of a decedent who was a citizen or resident of the United States of America; (11) U.S. reportable account means a financial account maintained by a reporting financial institution and, pursuant to the due diligence procedures provided in rule 114H, is identified to be held by one or more specified U.S. persons or by an entity not based in the United States of America with one or more controlling pers ..... 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