SFT – Statement of Financial Transaction

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SFT – Statement of Financial Transaction

The Statement of Financial Transaction (SFT) is a tool used by the government to monitor specific high-value financial transactions made by citizens. This initiative aims to reduce black money and broaden the tax base in India.

Purpose and Reporting Requirements

To keep track of these significant financial activities, the Government of India mandates certain specified persons and entities to report these transactions to the Income Tax department. These specified persons include banks, financial institutions, and other entities engaged in large-scale financial dealings.

What is SFT?

The Statement of Financial Transaction (SFT) is a report of certain high-value financial transactions that specified persons are required to submit to the Income Tax authority or another designated authority or agency. This requirement aims to ensure transparency and compliance in financial dealings, helping to curb black money and widen the tax base in India.

Legal Requirement under Section 285BA

Under Section 285BA of the Income Tax Act, specified persons who register, maintain, or record these high-value transactions are obligated to submit an SFT.

Types of Transactions to be Reported

The following transactions must be reported in the SFT:

• Purchase, Sale, or Exchange: Any transaction involving the purchase, sale, or exchange of goods or property, or any right or interest in property.
• Service Transactions: Transactions for rendering any service.
• Works Contracts: Transactions under a works contract.
• Investments and Expenditures: Any transaction involving an investment made or an expenditure incurred.
• Loans and Deposits: Transactions involving the taking or accepting of any loan or deposit.

Specified Persons Required to Report

The following entities are required to furnish the SFT for transactions recorded or maintained by them during a financial year:

1. Assessees: General taxpayers.
2. Government Offices: The prescribed person in government offices.
3. Local Authorities and Public Bodies: Including associations.
4. Registrars and Sub-Registrars: Under the Registration Act, 1908.
5. Vehicle Registration Authorities: Empowered under the Motor Vehicles Act, 1988.
6. Post Master General: As referred to in the Indian Post Office Act, 1898.
7. Collectors: Under the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation, and Resettlement Act, 2013.
8. Recognised Stock Exchanges: As referred to in the Securities Contracts (Regulation) Act, 1956.
9. RBI Officers: As constituted under the Reserve Bank of India Act, 1934.
10. Depositories: As referred to in the Depositories Act, 1996.
11. Financial Institutions: Prescribed reporting financial institutions.
12. Other Specified Persons: Any other person as prescribed by the authorities.

Filing and Compliance

All specified persons must ensure that the SFT is submitted accurately and timely to the prescribed authority, following the guidelines and regulations set by the Income Tax department. This process helps maintain a transparent financial system and aids in effective tax administration.

When the transactions are required to be reported?

Section 285BA empowers the Central Board of Direct Taxes (CBDT) to set specific values for certain financial transactions. When these transactions meet the specified criteria, particular individuals and entities are required to report them under the Statement of Financial Transactions (SFT). The CBDT has outlined the types of transactions and their respective threshold values in Rule 114E.

Here is a simplified overview of these guidelines:

Sr No	Nature of transaction to be reported	Monetary Threshold limit	Specified person required to submit SFT
1	Cash payment for purchase of bank drafts or pay orders or banker’s chequePayments in cash for purchase of pre-paid instruments issued by Reserve Bank of IndiaCash deposits or Cash withdrawals from one or more current account of a person	Aggregating to INR 10 lakh or more in a FYAmount aggregating to INR 10 lakh or more during the FY  Aggregating to INR 50 lakh  or more in a FY	A banking company or Co-operative bank to which Banking Regulation applies
2	Deposits in one or more accounts other than a current account and time deposit of a person	Aggregating to INR 10 lakh or more in a FY	A banking company or Co-operative bank to which Banking Regulation applies Post-Master General of post office
3	One or more time deposits (other than renewed time deposit of another time deposit) of a person	Aggregating to INR 10 lakh or more in a FY	(i) A banking company or a co‑ operative bank(ii) Post Master General(iii) Nidhi Company(iv) Non-banking financial company
4	Credit card payments made by any person either in cash or by any other mode in a FY.	Aggregating to INR 1 lakh or more in cash or INR 10 lakh or more by any other mode in a FY	A banking company or Co-operative bank to which Banking Regulation applies or any other company or institution issuing credit card
5	Receipt from any person for acquiring bonds or debentures issued by the company or institution (other than renewal)	Aggregating to INR 10 lakh or more in a FY	A company or institution issuing bonds or debentures
6	Receipt from any person for acquiring shares (including share application money) issued by the company	Aggregating to INR 10 lakh  or more in a FY	Any company issuing shares
7	Buyback of shares from any person (other than the shares bought in the open market)	Aggregating to INR 10 lakh  or more in a FY	Listed company purchasing its own securities under section 68 of the Companies Act, 2013
8	Receipt from any person for acquiring units of one or more schemes of a Mutual Fund (other than transfer from one scheme to another)	Aggregating to INR 10 lakh or more in a FY	A trustee of a Mutual Fund or any such other person authorized to manage the affairs of the Mutual Fund
9	Receipt from any person for sale of foreign currency including any credit of such currency to foreign exchange card or expense in such currency through a debit or credit card or through issue of travelers cheque or draft or any other instrument	Aggregating to INR 10 lakh or more during a FY	Authorized person as referred in the Foreign Exchange Management Act, 1999
10	Purchase or sale of immovable property	Transaction value or valuation of stamp duty authority referred in Section 50C for an amount of INR 30 lakhs or more.	Inspector-General appointed under section 3 of the Registration Act, 1908 or Registrar or Sub-Registrar appointed under section 6 of that Act.
11	Cash receipt for sale, by any person, of goods or services of any nature (other than those specified at Sl. Nos. 1 to 10)	Exceeding INR 2 lakh	Any person who is liable for audit under section 44AB of the Act
12	Cash deposits during the period 09th November, 2016 to 30th December, 2016	Aggregating to INR 12,50,000 or more in one or more current account of a person or INR 2,50,000 or more in one or more account (other than current account) of a person	A banking company or Co-operative bank to which Banking Regulation applies Post Master General of post office
13	Cash deposits during the period 1st of April, 2016 to 9th November, 2016 in respect of accounts that are reportable under Sl.No.12.		A banking company or Co-operative bank to which Banking Regulation applies Post Master General of post office

Aggregation rule

When analyzing whether the monetary threshold for specified financial transactions has been crossed, it is crucial to aggregate amounts except for SI No 10 and 11. Here are some key points to remember while aggregating the amounts:

Aggregation Rules:

1. All Accounts of the Same Nature:
   • What to Do: Combine all accounts of the same type held by a person within the financial year.
   • Example: If Mr. Z has two current accounts and deposits ₹10 lakh in each, to check the ₹20 lakh threshold, sum the amounts in both accounts.
2. All Transactions of the Same Nature:
   • What to Do: Aggregate all transactions of the same type made by a person within the financial year.
   • Example: If Mr. Y buys shares worth ₹15 lakh in October and ₹7 lakh in November, combine these amounts to check the ₹22 lakh threshold.
3. Joint Accounts:
   • What to Do: Attribute the entire value of the transaction or the total of all transactions to each account holder.
   • Example: If Mr. Y and Mr. Z have two joint savings accounts with ₹8 lakh and ₹12 lakh, the total of ₹20 lakh is attributed to both Mr. Y and Mr. Z separately to check the threshold.

Reporting Forms for SFT:

• Form 61A:
  • How to Submit: Electronically, with a digital signature.
  • Who to Submit To: The Director of Income-tax (Intelligence and Criminal Investigation) or the Joint Director of Income-tax (Intelligence and Criminal Investigation).
• Post Master General or Registrar or Inspector General:
  • How to Submit: Can use computer-readable media such as Compact Disc (CD) or Digital Video Disc (DVD).
  • Verification: Along with verification in Form-V on paper.

Practical Tips:

• Record Keeping: Ensure you maintain detailed records of all financial transactions and account activities.
• Compliance: Regularly check if your transactions exceed the specified thresholds to stay compliant with reporting requirements.
• Timely Reporting: Submit the SFT in the prescribed forms and formats within the stipulated time to avoid penalties.

What is the Procedure to Submit SFT?

Step 1: Generate a New ITDREIN

1. Log In to the E-filing Portal:
   • Access your account by logging into the e-filing portal.
2. Navigate to ITDREIN Management:
   • Go to the “My Account” section and select “Manage ITDREIN” (Income Tax Department Reporting Entity Identification Number).
3. Select Form Type and Category:
   • Choose the appropriate form type and reporting entity category.
   • Click on “Generate ITDREIN.”
4. Receive Confirmation:
   • After generating the ITDREIN, you will get a confirmation via email and SMS sent to your registered email address and mobile number.
   • The generated ITDREIN will be available under “My Account > Manage ITDREIN.”

Step 2: Prepare the Form

1. Go to Form Upload:
   • Navigate to “e-file” and select “Upload Form ‘xxx'” (the correct form number will appear based on your earlier selection during ITDREIN registration).
2. Enter Details:
   • Verify or enter the following details:
     • PAN (Permanent Account Number)
     • Form Name
     • Financial Year (FY)
     • Reporting Entity Category
     • Half-Year
     • Upload Type (whether it is an original, correction, or Nil statement)

Step 3: Upload the File

1. Validate Details:
   • Ensure all the details entered are correct.
2. Attach Digital Signature:
   • Upload the file along with your digital signature certificate.
3. Receive Upload Confirmation:
   • A success message will appear on the screen upon successful upload.
   • Confirmation will be sent via email and SMS to your registered email address and mobile number.
4. File Status:
   • Your uploaded file will be either ‘accepted’ or ‘rejected’.
   • If rejected, the reason will be provided. You will need to correct the errors and resubmit using the same procedure.

Due Date for SFT Submission

• The SFT must be submitted by 31st May following the financial year in which the transaction was recorded.

Inaccurate or defective statement of financial transaction

If someone submits a financial statement but later realizes there are errors, they must inform the tax authorities within ten days and provide the correct information. Conversely, the tax authorities can also notify individuals of any mistakes and give them 30 days to rectify them.

Not submitting a financial statement on time can lead to penalties under section 271FA, which could be as much as Rs. 500 per day of delay. If a statement isn’t filed by the due date, the tax authorities may send a notice requesting it within 30 days. If the statement still isn’t submitted within the specified time, a penalty of Rs. 1,000 per day may be imposed starting from the day after the deadline mentioned in the notice.

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Official Income Tax Return filing website: https://incometaxindia.gov.in/