Taxation

An Overview of Specified Financial Taxation (SFT)

Under section 285BA of the Income Tax Act, 1961, an SFT (Statement of Financial Transaction) or (Specified Financial Transactions) is a report which is filed by ‘specified persons’ recording transactions which exceed the threshold limit including the investment and expenditure done by the taxpayers in a Financial Year.

These specified persons registering, recording and maintaining these SFTs are under a mandate to submit SFT to the Income Tax Authority or any other specified agency or authority.

According to the existing reporting system, information regarding the high value transactions recorded in SFTs was shared by the Banks and Financial Systems with the tax authorities.

A new form was released by the government in the year 2020 called form 26AS which included high value transactions from SFTs which would be visible to the taxpayer^[1].     

What specified transactions are required to be reported?

Following are the specified transactions that are required to be reported:

• Transactions for providing any service
• Transactions of purchase, sale/ exchange of property or goods or right or interest in a property
• Transactions by an expenditure incurred or by way of investment made
• Transaction for accepting or taking any loan or deposit
• Transactions under works contract
• Nature and value of specified transactions required to be reported and the specified persons who are required to report
• Deposit of cash of more than Rupees 10 lakhs in a savings account
• Pay orders, purchase of bank drafts of more than Rupees 10 lakhs in a financial year
• Cash received of more than Rupees 2 lakhs for rendering of services or sale of goods
• Where expenditure of more than rupees 10 lakhs has been done in foreign currency through debit card, credit card or travellers cheque in financial year
• Where cash payment has been made of more than rupees 10 lakhs in FD in a given financial year
• Where cash withdrawal or cash deposit has been made in a current account exceeding 50 lakh rupees during a financial year
• Where cash is received more than Rupees 2 lakhs for the sale of goods or for rendering of services
• Where expenditure has been made in foreign currency via debit cards, travellers cheque or credit card for more than Rupees 10 lakhs in a financial year
• Payment of more than Rupees 10 lakh via credit card in a financial year
• Where cash of more than Rupees 1 lakhs is paid for a credit card bill in a financial year
• Where the sale/ purchase of immovable property, stamp duty exceeds a sum of Rupees 30 lakhs
• Where the mutual funds investments exceed a sum of rupees 10 lakhs in a given financial year
• Where purchase of debentures and bonds exceeds a sum of rupees 10 lakhs in a given financial year
• Where the purchase of shares through rights issue or IPO exceeds an amount of rupees 10 lakhs
• Buy-back of shares from a person of more than rupees 10 lakhs  

Procedure of filing of SFTs

SFTs are filed either in the Form 61B (prescribed reporting financial institutions) or in the Form 61A (other reporting entities).

SFTs are filed electronically under a digital signature certificate to the Director of Income Tax (Intelligence and Criminal Investigation) of the Joint Director of IT (Intelligence and Criminal Investigation). A Registrar or a Post Master General or an IG may furnish SFT in a computer readable media such as a CD or DVD along with verification in Form V on paper.

Who has to make compulsory filing of returns?

The government mandates the following persons to make compulsory filing of returns:

• A person having bank transactions over Rupees 30 lakhs
• Rent is paid above Rupees 40 thousand
• All businesses and professional having a turnover above Rupees 50 lakhs

What is the due date of furnishing SFTs?

The government has decided that the last date for filing of SFT under Form 61A is on or before 31^st May of the financial year immediately following the financial year in which the transactions are registered or recorded. For example, for the transactions made in the financial year of 2021-2022, the due date for furnishing of SFTs is 31^st of May, 2022.

Similarly, the statement of reportable account in Form 61B shall be furnished by the prescribed financial institution for every calendar year on or before 31^st of Mat of the next year.

Remedy available for defect in SFT

If the concerned Income Tax Authority finds the SFT to be defective, the same shall be intimated to the reporting entity/person by such authority. An opportunity shall be given for rectifying the defect within a period of 30 days from the date of intimation. This due date of rectification can be extended at the discretion of the Income Tax Authority on the basis of an application made on this behalf.

If the person fails to make rectify the defects within the period of 30 days or the extended period, then the said statement shall be treated as invalid and the consequences of failure to submit SFT shall be applicable.

Failure to file SFTs

Where the concerned person fails to furnish SFT within due date, the prescribed income tax authority serves a notice upon that person to furnish SFT within a period of 30 days from the date of service of notice and the concerned person has to furnish SFT within the time limit specified in the notice. If the concerned person fails to make a payment within the original due date, a penalty of Rupees 500 is imposed for every day of default. Further, if the SFT is not furnished within the extended period provided in the notice served upon the concerned person, then a penalty of Rupees 1000 shall be levied from the day immediately after the day on which the specified time in notice expires.

Read our Article:Understanding the Concept of Statement of Financial Transaction (SFT) – Annual Information Return (AIR)