SFT: A Detailed Overview of Statement of Financial Transaction
The Indian economy has seen numerous changes in this age of digitalisation, including the adoption of digital wallets and UPI transactions, among other things. As black money became widely used, it also created a problem for the authorities. Under Section 285BA of the ITA, the government created the Annual Information Return (AIR) in 2003 to address all of these issues. A "duty or obligation to present a statement of financial transaction or reportable account" was added to the statute when it was changed to become the Finance statute of 2014. In this article, we will provide a detailed overview of the SFT or statement of financial transaction.
Table of Contents
What is a Statement of Financial Transaction (SFT)?
For their specified financial transactions, filers are required to provide a reportable account or statement of financial activities. The provided information will appear in the taxpayer's Annual Information Statement (AIS). This makes it easier for the taxpayer to accurately file their ITR by identifying every transaction that was reported to the income tax department. It enables the IT division to monitor transactions and stop illegal conduct. Throughout the fiscal year, SFT keeps an eye on the taxpayer's high-value transactions. When paying income taxes, all taxpayers are required to complete SFT reporting for their specified financial transaction by submitting Form 26AS. All transactions, including investments, expenses, and more, that go beyond the threshold limit set by the taxpayers are specified by the SFT transaction in 26AS.
Specified Transactions to be Reported
The following financial transactions are particularly mandated to be disclosed under Section 285BA:
Purchases, sales, and exchanges of products, property, rights, or interests in property
A transaction for the provision of any service
Dealing with an employment contract
Transaction through a financial investment or expense
Procedure for obtaining or accepting a deposit or loan
When Should Specified Transactions be Reported
The Central Board of Direct Taxes (CBDT) is authorised by Section 285BA to prescribe varying values for various specified financial transactions involving various specified individuals, depending on the nature of the transactions. The following table illustrates the CBDT recommendations as per Rule 114E:
Nature of transaction | Monetary threshold of the transaction | Specified person who should submit SFT |
| Aggregating to Rs.10 lakh or more in a financial year | A banking company/co-operative bank to which the banking regulation is applicable |
| Aggregating to Rs.10 lakh or more in a financial year | |
| Aggregating to Rs.50 lakh or more in a financial year | |
Cash deposits in one or more accounts besides a current account and time deposit | Aggregating to Rs.10 lakh or more in a financial year |
|
One/more time deposits (besides renewed time deposit of another time deposit) | Aggregating to Rs.10 lakh or more in a financial year |
|
Credit card payments made in cash or by any other mode in a financial year |
| A banking company/co-operative bank to which Banking Regulation is applicable or any other company/institution issuing credit card |
Receipt for acquiring bonds/ debentures issued by the company or institution (apart from renewal) | Aggregating to Rs.10 lakh or more in a financial year | A company/institution issuing bonds /debentures. |
Receipt for acquiring shares (including share application money) issued by the company | Aggregating to Rs.10 lakh or more in a financial year | A company issuing shares |
Buyback of shares (other than the shares bought in the open market) | Aggregating to Rs.10 lakh or more in a financial year | Listed company buying its own securities under Section 68 of the Companies Act, 2013 |
Receipt for acquiring units of one or more mutual fund schemes (apart from transfer from one scheme to another) | Aggregating to Rs.10 lakh or more in a financial year | A trustee of a mutual fund/any other person authorised to manage the mutual fund affairs |
Receipt for sale of foreign currency including credit of such currency to a foreign exchange card/expense in such currency through a debit/ credit card or through the issue of travellers cheque/draft or any other instrument | Aggregating to Rs.10 lakh or more during a financial year | Authorised person referred to in Section 2(c) of the Foreign Exchange Management Act, 1999 |
Purchase/sale of immovable property | Transaction value/valuation of stamp duty authority referred in Section 50C for an amount exceeding Rs.30 lakh | Inspector-General appointed under Section 3 of the Registration Act, 1908 or Registrar or Sub-Registrar appointed under section 6 of that Act |
Cash receipt for sale of goods or services of any nature (other than those specified at Sl. Nos. 1 to 10) | Exceeding Rs.2 lakh | Any person liable for audit under section 44AB of the Act |
Understanding Aggregation Rule
As can be shown from the above financial threshold, aggregation is necessary to determine whether the financial threshold is being crossed for certain financial transactions, with the exception of SI Nos. 10 and 11. The following should be observed when adding up the amount:
Every account of the same kind kept for that individual during the fiscal year, as listed in column (2) of the above table, will be considered. For instance, if Mr. A has two savings accounts, each worth Rs. 5 lakh, the sums in both accounts must be added up in order to verify the Rs. 10 lakh monetary threshold.
All of the transactions of the same kind that were recorded for that individual throughout the fiscal year and are shown in column (2) of the above table will be combined. To check the monetary threshold of Rs. 10 lakh, for instance, the value of both shares must be added up if Mr. A bought shares for Rs. 5 lakh in September of a given fiscal year and Rs. 6 lakh in November of the same year.
Assign the full amount of the transaction or the total value of all the transactions to each individual when the account is maintained or a transaction is recorded in the names of many people, such as a joint account. For instance, to check for the monetary threshold, an amount of Rs. 10 lakh is ascribed to each of Mr. A and Mr. B separately if they have two joint savings accounts of Rs. 3 lakh and Rs. 7 lakh.
Documents Required for Filing SFT
The following paperwork must be submitted with the SFT, including:
It is important to verify the official website before performing the procedure online because the paperwork may differ.
Process for Submission for SFT
SFT must be filed on Form 61B (prescribed reporting financial institution) or Form 61A (other reporting organisations). The SFT must be electronically submitted to the Director of Income Tax (Intelligence and Criminal Investigation) or the Joint Director of Income Tax (Intelligence and Criminal Investigation) using the digital signature certificate. Together with the verification in Form-V on paper, a Post Master General, Registrar, or Inspector General may provide SFT in computer-readable medium, such as a Compact Disc or Digital Video Disc (DVD). The following process must be followed in order to submit an SFT:
Step 1: Visit the income tax portal's official website to begin the SFT filing procedure.
Step 2: Next, enter your login and password to access the account.
Step 3: Go to the "My Account" area after logging in.
Step 4: Locate the "Manage ITDREIN" option by scrolling down under that option.
Step 5: Click the "Generate New ITDREIN" option once more.
Step 6: You must select the form type and reporting category under that choice. Click "Generate ITDREIN" once you have made your selection.
Step 7: Following that, an ITDREIN will be generated, and an email and SMS acknowledgement will be sent.
Step 8: Select "Upload Form Documents" from the e-file menu once this ITDREIN begins to appear on the account.
Step 9: A new form will open, requiring you to confirm all the information, including your name, PAN, reporting category, and more.
Step 10: Upload a digital signature certificate following verification. You will receive an email and SMS confirming the upload.
Due Date for SFT Reporting
All SFT reporting must be completed by the specified deadline. Form 61B of STF must be filed by May 31st of the fiscal year, in accordance with Section 285BA of the Income Tax Act. The institution or entities must provide Form 61A by May 31st of the fiscal or calendar year at the latest.
Addressing a Mistake in SFT Submitted
The IT department permits corrections within 30 days if the income tax department discovers an error in the submitted SFT. If the entity seeks or makes its case to the income tax department, the deadline may also be exceeded. Nonetheless, it ought to occur at the government's discretion. Furthermore, the application will be deemed invalid by the income tax department if the firm does not correct its error or submit the amended SFT within the allotted time. Additionally, the applicant must deal with the repercussions of failing to submit the SFT on time.
Consequences of Non-Compliance with Section 285BA
If SFT is not furnished by the deadline, the prescribed income-tax authority may serve notice on the individual, requiring him to provide SFT within 30 days of the notice's date of service. He must also provide the statement within the time frame given in the notice. There will be a fine of Rs 500 per day of default if the reporting person fails to provide the SFT by the first deadline. Additionally, a penalty of Rs 1,000 per day will be applied starting the day after the notice's stipulated period expires if no report is submitted, even by the extended deadline mentioned in the notice delivered to the individual. Overall, there is a penalty of Rs 1,000 per day beyond the notice's defined due date and Rs 500 per day from the initial due date to the notice's stated due date.
The prescribed reporting financial institution will be fined Rs 50,000 if it gives false information in the statement in the following areas:
Inaccuracy results from a person's wilful disregard for the required due diligence or from a failure to follow the due diligence obligation or
The individual is aware of the error while providing the financial transaction statement or reportable account, but fails to notify the designated income-tax authority or another authority or agency; or
After the financial transaction or reportable account statement is provided, the individual finds the error and neglects to notify and provide accurate information within the ten days specified above.
Conclusion
The government can monitor high-value transactions made by taxpayers with the use of the statement of financial transactions. The effort to stop black money and save the nation's economy is commendable. However, taxpayers must realise their obligation by submitting the SFT if this plan is to be successful. If you don't, the income tax office may punish you with heavy fines.
FAQ
Q1. Who is required to submit an SFT statement?
A financial institution, depository, mutual fund house, company, etc., is required to file SFT for transactions conducted by its account holders. The information will appear in the taxpayers' AIS after such a statement is submitted.
Q2. What is the due date for filing SFT?
The specified taxpayer has until May 31st of the following fiscal year to file their SFT. For FY 2023–2024, the deadline is May 31, 2024.
Q3. How much interest income is reported in SFT?
According to a recent announcement from the Central Board of Direct Taxes (CBDT), all account holders—aside from those with Jan Dhan Accounts—who receive or earn interest up to ₹5,000 must record it in SFT.
Q4. What is SFT information in AIS?
The purchase of stocks, mutual funds, cash deposits above Rs 10 lakhs, and other specified or reportable financial transactions that occurred during the fiscal year are all included in the SFT, or Statement of Financial Transactions. The income tax department will receive reports of these specific transactions from banks and other financial intermediaries, and the information will then be reflected in the individual taxpayer's AIS.
Q6. Do I need to report SFT transactions on my Income Tax return?
Your Form AIS will show your SFT details. SFT transactions can be from the Expense/Purchase side (buying stocks/MF/immovable property, etc.) or the Income/Sale side (selling stock/MF, SB interest, etc.). Since the selling side transaction must be disclosed on your ITR form and may have an impact on tax calculations, it may be significant. Purchase and expense-related transactions may not have an immediate effect on your tax return. Any notable discrepancy between the income and expenses, however, could result in an income tax notice.
Q7. What happens if SFT is not filed?
A notification with a 30-day extension to file SFT will be provided to the person or entity that does not file SFT by the deadline, and they will be fined ₹500 per day.
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