Rule 240 of the Income-tax Rules, 2026

Where this rule sits

← Rule 239  ·  Rule 241 →

What this rule does

Sub-rule (1) states when an account becomes reportable and how often it is reported: an account is treated as a reportable account beginning as on the date it is identified as such pursuant to the due diligence procedure in sub-rules (3) to (8), and unless otherwise provided, information with respect to a reportable account is to be reported annually in the calendar year following the calendar year to which the information relates.

Sub-rule (2) defines the categories the whole rule turns on. "Documentary evidence" includes a certificate of residence issued by an authorised Government body, valid Government identification for an individual, official documentation for an entity showing its name and either its principal office address or place of incorporation, and any financial statement, third-party credit report, bankruptcy filing or report of the Government agency regulating the securities market. A "high value account" is a pre-existing individual account whose balance or value exceeds an amount equivalent to one million U.S. Dollars — as on 30th June, 2014 or 31st December of any subsequent year for a U.S. Reportable account, and as on 31st December, 2015 or 31st December of any subsequent year for any other reportable account. A "lower value account" is a pre-existing individual account which, for a U.S. Reportable account, exceeds fifty thousand U.S. Dollars but does not exceed one million U.S. Dollars as on 30th June, 2014, and for any other reportable account does not exceed one million U.S. Dollars as on 31st December, 2015. "New account" and "pre-existing account" are fixed by the same two dates — accounts opened on or after 1st July, 2014 or 1st January, 2016 are new, and accounts maintained as on 30th June, 2014 or 31st December, 2015 are pre-existing — with a further date for accounts that are financial accounts solely by virtue of the amendments to the Common Reporting Standard: new if opened on or after 1st January, 2026, pre-existing if maintained as of 31st December, 2025. Where a threshold is to be determined at the end of a calendar year, the balance or value is taken as on the last day of the reporting period ending with or within that calendar year.

Sub-rule (3) is the procedure for pre-existing individual accounts. Clause (a) exempts certain accounts from review: for a U.S. Reportable account, one whose balance does not exceed fifty thousand U.S. Dollars as on 30th June, 2014, or a cash value insurance or annuity contract not exceeding two hundred and fifty thousand U.S. Dollars on that date, or such a contract the institution is legally prevented from selling to a U.S. Resident; and for any other reportable account, such a contract the institution is prevented from selling to a person not resident in India for tax purposes. Clause (b) governs lower value accounts through an electronic search for six indicia — identification as a resident of a country or territory outside India or a place of birth in the United States of America, a current mailing or residence address outside India, telephone numbers only outside India, standing instructions to transfer funds to an account outside India, a power of attorney or signatory authority granted to a person with an address outside India, and a "hold mail" instruction or "in-care-of" address outside India where no other address is on file. Finding none of them ends the matter until there is a change in circumstances or the account becomes a high value account; finding any of the first five makes the holder a resident of each country for which an indicium is identified unless the institution elects to apply the curing procedure in sub-clause (v) and one of its exceptions applies; and finding only a hold mail or in-care-of address requires a paper record search or a self-certification or documentary evidence, failing which the account is reported as an undocumented account. Sub-clause (v) sets out the curing documents — for a U.S. Place of birth, a self-certification of non-U.S. Status, a passport or other Government identification of another country and a certificate of loss of nationality or a reasonable explanation of its absence; and for other indicia, a self-certification of residence not including any country outside India together with, or in the power of attorney and telephone cases alternatively, documentary evidence of non-reportable status.

Clause (c) adds enhanced review for high value accounts: the electronic search, a paper search of the current customer master file and, if not there, the most recent documentary evidence, account opening documentation, anti-money-laundering documentation, powers of attorney and standing instructions obtained in the last five years, unless the electronically searchable data already covers the six listed fields; an obligation to treat the account as reportable where a relationship manager has actual knowledge that the holder is a reportable person; and rules for what follows the search, including reporting as undocumented where a hold mail or in-care-of address cannot be cured. Sub-clause (vi) brings an account that later crosses one million U.S. Dollars into enhanced review within the following calendar year; sub-clause (vii) exempts an institution from repeating the enhanced review in later years except for the relationship manager inquiry, unless the account is undocumented, in which case the procedures are re-applied annually; and sub-clauses (viii) and (ix) deal with changes in circumstances and require procedures to ensure a relationship manager identifies them. Clause (d) fixes the completion dates for review — 31st December, 2015 for U.S. High value accounts, 30th June, 2016 for U.S. Low value accounts and 31st December, 2016 for other high value accounts, and 30th June, 2017 for other low value accounts — and clause (e) keeps an account reportable in all subsequent years unless the holder ceases to be a resident of the country or territory outside India.

Sub-rule (4) governs new individual accounts. Unless the institution elects otherwise, a depository account and a cash value insurance contract are outside review as U.S. Reportable accounts unless the balance or cash value exceeds fifty thousand U.S. Dollars at the end of any calendar year. Otherwise the institution must obtain a self-certification — on account opening for other reportable accounts, and for U.S. Reportable accounts on opening or within ninety days after the end of the calendar year in which the account ceases to be covered by the exclusions — and confirm its reasonableness against the account opening information. Where the self-certification shows residence outside India the account is reportable, and the self-certification must also carry the taxpayer identification number, subject to rule 239(5), and the date of birth. A change of circumstances that makes the self-certification incorrect or unreliable requires a valid new one, failing which the account is treated as reportable.

Sub-rule (5) governs pre-existing entity accounts, with a review threshold of two hundred and fifty thousand U.S. Dollars as on 30th June, 2014 or 31st December, 2015, and a re-entry into review where the aggregate balance later exceeds that figure on the last day of any subsequent calendar year. Accounts above it are reviewed under clause (d) to see whether they are held by reportable persons, by a passive non-financial entity with controlling persons who are reportable persons, or by non-participating financial institutions, using regulatory and customer relationship information, self-certifications, publicly available information and Global Intermediary Identification Numbers. For controlling persons of a passive non-financial entity, anti-money-laundering information may be relied on where the aggregate balance does not exceed one million U.S. Dollars, and a self-certification is required above that. Clause (e) fixes the review deadlines — 30th June, 2016 and 31st December, 2016 respectively — and requires re-determination on a change of circumstances.

Sub-rule (6) governs new entity accounts, requiring a self-certification on account opening, with the entity's principal office address relied on where it certifies no residence for tax purposes, and the same passive non-financial entity and controlling person tests. Sub-rule (7) adds general procedures: a self-certification or documentary evidence may not be relied on if the institution knows or has reason to know it is incorrect or unreliable; where a self-certification for a new account other than a U.S. Reportable account cannot be obtained in time, pre-existing account procedures apply until it is obtained and validated; a death benefit beneficiary of an insurance or annuity contract may be presumed not to be a reportable person absent knowledge or reason to know; balances are aggregated across accounts the institution's computerised systems link, and across accounts a relationship manager knows are owned or controlled by the same person; each holder of a joint account is attributed the entire balance; and any account in rupees or another permissible currency is converted to United States Dollars at the end of the reporting period at Reserve Bank of India reference rates.

Sub-rule (8) provides alternative procedures for a U.S. Reportable account opened on or after 1st July, 2014 but before the fatca agreement entered into force: within one year of entry into force the institution must seek the self-certification or perform the new entity account due diligence; report an account so identified by the later of the 31st May following identification and forty-five days after it; close by that one-year date any such account for which the required documentation could not be collected, applying the high value account procedure or the pre-existing entity account procedure to the closed accounts; and report a closed account so identified by the same later-of date. New entity accounts opened between 1st July, 2014 and 1st January, 2015 may instead be treated as pre-existing entity accounts without regard to the threshold.

Sub-rule (9) provides that for rules 238, 239 and this rule, exchange of information on any transaction in relevant crypto-assets is only for the limited purposes of administration of taxes by the relevant jurisdiction.

Why it is there

Rule 239 says what must be reported about a reportable account, but a bank cannot report what it has not identified, and residence for tax purposes is not something a customer file records directly. This rule supplies the identification method. It sorts every account on two axes — individual or entity, and pre-existing or new — because the evidence available differs in each case: a new account can be made to yield a self-certification at opening, while a pre-existing account has to be searched for indicia that suggest a foreign connection. Thresholds keep small accounts out of the exercise, enhanced review and relationship manager knowledge catch the largest ones, and the curing procedure lets a customer displace an indicium with documents rather than being reported on the strength of an old address.

Who it applies to

• A reporting financial institution maintaining financial accounts
• An account holder of a pre-existing or new individual account
• An entity account holder, including a passive non-financial entity and its controlling persons
• A relationship manager assigned a high value account
• A beneficiary of a cash value insurance contract or annuity contract receiving a death benefit

The figures, and what each one turns on

What this means in practice

Every threshold in this rule is in United States dollars and every rupee balance has to be converted before it is tested — sub-rule (7)(c)(iv) fixes the conversion at the Reserve Bank of India reference rates at the end of the reporting period, so an account near a threshold can cross it on exchange movement alone. Thresholds are also not permanent exclusions: an account below the line at the outset comes into review when it crosses the line at a later year end, and a pre-existing individual account that becomes a high value account attracts the enhanced review within the following calendar year. Aggregation decides more cases than any single balance, because sub-rule (7)(c) requires accounts linked by the institution's computerised systems to be added together, requires a relationship manager to add accounts he knows are owned or controlled by the same person, and attributes the whole of a joint account to each holder. Indicia are not proof and not conclusive: the curing procedure in sub-rule (3)(b)(v) lets the holder displace them with specified documents, but only where the institution elects to apply it and the exact documents listed are held, and a hold mail or in-care-of address that cannot be cured leads to reporting the account as undocumented rather than to leaving it alone. Two obligations survive a clean review — the relationship manager inquiry under sub-rule (3)(c)(iv) and (vii), and the change of circumstances rules, which reopen an account that had been cleared. Note that documentation failure has a hard consequence in one place: under sub-rule (8)(c) the institution must close a new account opened in the fatca transition window for which the required documentation could not be collected.

An example

A bank holds an individual account opened in 2012 with a balance equivalent to 3,00,000 U.S. Dollars on 31st December, 2015. It is a pre-existing individual account and, being below one million U.S. Dollars on that date, a lower value account, so the electronic indicia search in sub-rule (3)(b) applies and the review had to be completed by 30th June, 2017. The search finds a mailing address outside India; the bank elects to apply sub-rule (3)(b)(v) and obtains a self-certification of residence that does not include any country outside India together with documentary evidence of non-reportable status, so it need not treat the holder as resident there. Two years later the balance rises past one million U.S. Dollars at a year end, and the bank must complete the enhanced review in sub-rule (3)(c) within the following calendar year.

Where you meet this rule

An account holder does not deal with this rule directly. He meets it as the self-certification of tax residence asked for when an account is opened, the request to confirm an address or supply a certificate of residence for an older account, and the tax identification number and date of birth collected alongside; the rule itself binds the reporting financial institution that asks for them.

The words themselves

What people get wrong

• Testing a rupee balance against a dollar threshold without conversion. Sub-rule (7)(c)(iv) requires conversion at the end of the reporting period at Reserve Bank of India reference rates.
• Treating an account once below a threshold as permanently outside review. Sub-rules (3)(c)(vi) and (5)(b) bring it in when the balance later exceeds the threshold at a year end.
• Testing each account separately. Sub-rule (7)(c) requires aggregation of accounts linked by the institution's systems, of accounts a relationship manager knows are controlled by the same person, and attributes the whole of a joint account to each holder.
• Curing an indicium with whatever documents the customer offers. Sub-rule (3)(b)(v) lists the specific documents for each indicium, and applies only where the institution elects to use it.
• Leaving an account alone where a hold mail or in-care-of address cannot be resolved. Sub-rules (3)(b)(iv) and (3)(c)(v)(C) require it to be reported as an undocumented account.
• Assuming a completed enhanced review closes the file. Sub-rule (3)(c)(vii) preserves the relationship manager inquiry, requires annual re-application while an account is undocumented, and sub-rules (3)(c)(viii) and (ix) reopen it on a change of circumstances.
• Relying on a self-certification the institution has reason to doubt. Sub-rule (7)(a)(I) forbids reliance where it knows or has reason to know it is incorrect or unreliable.

Read with

• Rule 238
• Rule 239