Specified Financial Transactions: SFT Transactions


1. Specified Financial Transactions: SFT Transactions

Section 285BA of Income Tax Act, created responsibility to report Specified financial transactions popularly known as SFT. As per Section  285BA of Income Tax Act, Any of the following transactions can be prescribed as Specified financial transactions:

  • transaction of purchase/ sale/ exchange of goods or property or right or interest in a property; or
  • rendering any service; or
  • transaction under a works contract; or
  • transaction by way of an investment made or an expenditure incurred; or
  • taking or accepting any loan or deposit

Under any of the above categories, the department may prescribe different values for different transactions to be reported by different persons.

Provisions of reporting of SFT have been prevailing since a long time. As per changing scenarios and requirements, various transactions have been added to this list over the period of time to prevent taxpayers from understating their taxable Income.

2. Changes proposed in SFT Transactions (13.08.2020)

Government has launched a new platform for “Transparent Taxation-Honoring the Honest” under income tax act and there under various changes are made toward implementation of faceless Assessment and electronic Appeal procedures to increase transparency in the income tax system. 

Further, with an objective to improvise handholding on the transactions, the Government has also proposed to widen the scope of Reporting of SFT. Same has been done by adding various new specified transactions and also required various new persons to report SFT to ensure better compliance and Transparency.

Please note that no formal notification or press release has been issued to notify changes in scope of SFT. However, the same has been given through pamphlets issued on different government twitter pages.

As part of proposed expansion of reportable transaction under SFTs, following transactions would be under scanner:

  1. Payment of property tax above Rs.20,000 per annum
  2. Health insurance premium above Rs.20,000
  3. Payment to hotels above Rs. 20,000
  4. Life insurance premium above Rs.50,000
  5. Electricity consumption over Rs.1 lakh per annum
  6. Payment of educational fee/donations above Rs.1 lakh per annum.
  7. Purchase of jewellery, white goods, painting, marble etc. above Rs.1 lakh
  8. Deposit/credits in the current account above Rs.50 lakh
  9. Deposit/credits in the non-current account such as savings accounts above Rs.25 lakh
  10. Domestic business class air travel/ foreign travel
  11. Share transactions/de-mat accounts/Bank lockers

Further, following additional persons are also proposed to compulsorily file their return in form Annual Information Report (AIR):

  1. A person having bank transactions above Rs.30 lakhs
  2. All professionals and business having turnover above Rs 50 lakhs
  3. Payment of rent above Rs.40000.

Apart from these proposed changes, there are various transactions which are already required to be reported under SFT.

3. Nature and value of transaction required to be reported by specified persons

Section 285BA authorizes the Central Board of Direct Taxes (CBDT) to prescribe different values with respect to specified financial transactions in respect of different specified persons having regard to the nature of such transactions. 

Accordingly, list of specified transactions required to be reported by specified persons is provided in Rule 114E is given below:

  1. Cash payment made for purchase of bank drafts or pay orders or banker’s cheque where aggregate payment made during a year is INR 10 Lacs or more.
  2. Cash payments for purchase of prepaid instruments issued by RBI where aggregate payment made during a year is INR 10 Lacs or more.
  3. Cash deposits or withdrawals in one or more current accounts of a person aggregating INR 50 Lacs or more during a Financial Year.
  4. Cash deposits in one or more accounts, other than a current account and time deposit,(e.g. Savings accounts) of a person of INR 10 Lacs or more during a Financial year.
  5. One or more time deposits (other than renewed time deposit of another time deposit) of a person aggregating INR 10 lacs or more during a Financial year.
  6. Credit card payments made by any person either in cash or by any other mode in a FY where aggregating of payment is INR 1 lakh or more in cash or INR 10 lakh or more by any other mode.
  7. Receipt from any person for acquiring bonds or debentures issued by the company or institution (other than renewal) aggregating of INR 10 Lacs or more in a Financial year.
  8. Receipt from any person for acquiring shares (including share application money) issued by the company where Aggregating payment is Rs 10 lakh  or more in a FY
  9. Payment made for Buyback of shares from any person (other than the shares bought in the open market) for aggregating INR 10 lacs or more in a Financial year.
  10. 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 INR 10 Lacs or more in a Financial year.
  11. 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 travellers cheque or draft or any other instrument where aggregate amount received or incurred during the FY is INR 10 Lacs or more.
  12. Purchase or sale of immovable property by any person where Transaction value or valuation of stamp duty, as determined under Section 50C, is Rs 30 lakhs or more.
  13. Cash receipt by any person for sale of goods or services of any nature (other than those specified at Sl. Nos. 1 to 10) exceeding INR 2 Lacs.
  14. Cash deposits during the period 09th November, 2016 to 30th December, 2016 aggregating to Rs 12,50,000 or more in one or more current account of a person or Rs 2,50,000 or more in one or more accounts.

Different persons are specified for reporting above mentioned transactions such as Financial Institutions, Banks, Post Offices etc.

4. Due date of filing of SFT Transactions

SFT shall be furnished in Form 61A on or before 31st May immediately following the financial year in which transaction is registered or recorded.

Such specified persons were required to submit ‘Annual Information Return (AIR)’ introduced in 2003 with respect to specified financial transactions under Section 285BA.

5. Changes made in 26AS with effect from 01.07.2020

With an objective of ensuring better compliances, various changes are made in Form 26AS over the period of time. Major changes are also made recently with effect From 01 July 2020 wherein various new transactions and information has been added in Form 26AS itself. Government has launched a revised form 26AS which included high value transactions from SFTs from this assessment year, which would be now directly visible to the taxpayer at time of filing of Income Tax return.

Details of changes made in Form 26AS can be accessed.

6. Consequences of Not filing information regarding SFT under section 285BA

  • Where a person failed to furnish a statement under section 285BA on or before 31st May immediately following the financial year then the concerned income tax authority can issue a notice requiring him to furnish a statement within a period of 30 days from date of service of notice.  
  • If a furnished statement is defective, then the concerned income tax authority can require him to rectify such defect within a period of 30 days or extended period.
  • If such return is not rectified within time permitted by concerned Income tax authority then it shall be presumed that such person has furnished inaccurate information in the statement.

7. Failure to furnish SFT Transactions

  1. If a person fails to furnish SFT report under section 285BA by the due date then penalty shall be levied of Rs.500 per day till such failure continues. 
  2. Further, if a notice is served on a person requiring him to furnish SFT Transactionsstatement and such person fails to file the same within time allowed in notice then penalty of INR 1000 per day will be levied from the day immediately following the day mentioned in notice.

For Example: An assessee fails to file a statement of financial transactions till 31st May 2020. Notice is received from Income Tax Authority u/s 285BA to file till 31st July 2020 for which the notice is served on 1st July 2020. Now there are two possibilities:

a.   Return filed on 31st July 2020: Ankur will have to pay penalty of Rs.30500 (61days*Rs500 per day i.e. from 1st June to 31st July)

b.  Return filed on 31st August 2020: Penalty will be Rs.30500 plus additional 31000 (31 days* Rs.1000 per day i.e. from 1st August to 31st August).

8. Inaccurate information in SFT Transactions

As per section 271FAA, if a person who is required to furnish specified financial report, provides incorrect information in the statement due to any of the following reasons:

  • inaccuracy is due to a failure to comply with the prescribed due diligence requirement or is deliberate on the part of that person; or
  • the person knows of the inaccuracy at the time of furnishing the report, but he fails to inform the concerned income-tax authority about such default; or
  • where the person found inaccuracy after furnishing the statement and fails to inform and furnish the correct information within 10 days of filing.

Then the concerned income tax authority may impose a penalty on such a person of INR 50,000.

Comments

Post a Comment

Popular posts from this blog

Expenses disallowed under Section 40A(3) and Section 40A(3A) of the Income Tax Act, 1961

Expenses disallowed under Section 40A(3) and Section 40A(3A) of the Income Tax Act, 1961   Section 40A(3) was introduced as a provision designed to counter evasion of tax through claims for expenditure shown to have been incurred in cash with a view to frustrating proper investigation by the Department as to the identity of the payee and the reasonableness of the payment.   Section-40A(3) provides that where assessee incurs any expenditure in respect of which a payment or aggregate of payments made to a person in a day, otherwise than by an account payee cheque drawn on a bank or account payee bank draft or payment made by use of electronic clearing system through a bank account or through such other electronic mode as may be prescribed” exceeds Rs. 10 000/- (Rs. 20,000/- upto assessment year 2017-18), the whole of such expenditure shall not be allowed as deduction in computing profits and gains of business or profession. (Now applicable to charitable trusts also for the purposes of de
Read more

Cases when an Eway bill is not required

Image
Cases when an Eway bill is not required The GST law was introduced in India to right the several wrongs that the erstwhile law had. One of the main problems was that there was lack of transparency in the process with respect to both, the taxpayers as well as the Government. Under the GST regime, one of the methods of the Government to ensure transparency is by digitizing the process.  Eway bill  is one such measure. 1. Documents to carry in case eway bill is not required An Eway bill will act as an effective tool to check on tax evasion at various points and to track the movement of goods. But when it is not required to be generated, the transporter has to ensure that a copy of tax invoice or a bill of supply prepared according to the provisions of Law is carried.  An insight of how eway bill acts as a tax evasion tool can be seen from an instance. If some raw material is being transported from Karnataka to Tamil Nadu where it is processed into finished goods and sold, the state which
Read more

Long Term Capital Gain on Shares

  Shares (equity or preference) which are listed in a recognised stock exchange in India, units of equity oriented mutual funds, listed securities like debentures and Government securities, Units of UTI and Zero Coupon Bonds shall be considered as Long term Capital Asset if the period of holding is more than  12 months . Unlisted shares shall be considered as Long term Capital Asset if the period of holding is more than  24 months . Long-term capital gains arising from sale of listed securities : The  Finance Act, 2018  had inserted section 112A w.e.f.  AY 2019-20 . As per the new section capital gains arising from transfer of a long term capital asset being an equity share in a company or a unit of an equity oriented fund or a unit of a business trust shall be exempt up to Rs. 1,00,000/- and the amount exceeding Rs. 1,00,000/- will be taxed @ of 10%.   This concessional rate of 10% will be applicable if: in a case of an equity share in a company, STT has been paid on both acquisition
Read more