Mumbai: Market regulator Securities and Exchange Board of India (SEBI) has directed financial intermediaries to upgrade their Know Your Customer (KYC) and tax reporting systems to comply with revised international tax disclosure requirements.
In a circular issued on November 11, SEBI instructed registered intermediaries classified as Reporting Financial Institutions (RFIs) to incorporate updated FATCA and CRS requirements into their customer onboarding, verification and reporting processes.
The changes follow the implementation of the Income-Tax Act, 2025, and Income-Tax Rules, 2026, which replaced the previous legislation from April 1, 2026.
New Tax Reporting Rules
Under the revised framework, financial account reporting obligations are governed by Section 508 of the Income-Tax Act, 2025, Rules 238 to 240 and Form 166.
FATCA, or the Foreign Account Tax Compliance Act, aims to prevent tax evasion by US taxpayers holding overseas financial assets.
Meanwhile, the Common Reporting Standard (CRS) enables participating countries to exchange financial account information to identify potential cross-border tax evasion.
SEBI has directed intermediaries to revise their self-certification procedures to capture additional validity indicators and improve identification of individuals exercising control over financial accounts.
These include settlors, trustees, protectors, beneficiaries and other controlling persons.
KYC Systems Need Upgrades
Financial intermediaries must also modify their account classification systems to distinguish between existing and newly opened accounts while capturing relevant account categories.
Additionally, firms must upgrade their Form 166 XML generation software to incorporate newly mandatory reporting fields.
SEBI warned that incomplete information could trigger validation errors during submissions on the Income Tax portal.
The regulator has also instructed intermediaries to upload FATCA and CRS certifications collected from customers onto the systems maintained by KYC Registration Agencies (KRAs).
Importantly, SEBI clarified that responsibility for collecting certifications, submitting accurate information and ensuring regulatory compliance will remain entirely with the respective intermediaries.
The revised requirements aim to strengthen financial transparency, improve reporting accuracy and align India's tax information exchange mechanisms with international standards.
