Specified Financial Transactions (SFT): A Comprehensive Guide

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When taxpayers invest or spend more than a certain amount in a given fiscal year, they must file a report called an SFT (Specified Financial Transactions) or a SOFT (Statement of Financial Transactions) under Section 285BA of the Income Tax Act, 1961. Those required to file income tax returns or submit records of other financial transactions must also file SFT with the appropriate government agency. Previously, financial institutions were required to notify tax authorities of any high-value transactions recorded in SFTs. The government released a new version of Form 26AS in July 2020, making taxpayers more aware of high-value transactions from SFTs in the current assessment year.

How can I submit my SFT, and what forms must I utilise?

Form 61A (for other reporting organisations) or Form 61B (for specified reporting financial institutions) must be used to submit SFT. Every SFT must be delivered digitally, using the digital signature certificate, to either the Director of Income-tax or the Joint Director of Income-tax. In addition to the paper Form-V verification, the Post Master General, the Registrar, or the Inspector General may provide SFT on computer-readable media such as a Compact Disc or Digital Video Disc (DVD).

If an SFT is submitted with a problem, how may it be fixed?

If the relevant income-tax authority determines that the SFT submitted is flawed, it will notify the reporting organisation or individual of this determination and give them 30 days to correct the issue. Upon application, the income tax office may provide a further extension of time to cure the default. However, such a statement shall be deemed incorrect, and the penalties of non-furnishing of SFT will be imposed unless the deficiency is corrected within 30 days or an extended time.

Inability to provide SFT

Suppose a taxpayer needs to submit their SFT by the deadline. In that case, the prescribed income-tax authority can issue a notice requiring them to do so within 30 days of such information’s service date. A penalty of Rs. 500 per day will be imposed if the reporting person submits the SFT after the due date specified initially. Furthermore, a fine of Rs 1000 per day will be charged from the day after the stated period in the notice expires if the report still needs to be submitted within the extended due date mentioned in the information filed against the individual. There would be a penalty of Rs 500 every day after the first due date has passed until the due date listed in the notification and Rs 1,000 per day beyond that.

Statement of Financial Transaction (SFT) transactions that must be disclosed

Included under the scope of Section 285BA financial transactions are:

Buying, selling, or exchanging things, property, or rights to use property; or
The exchange for the provision of any service or
A Deal Made Under a Construction Contract;
Any business conducted by the making of an investment or the incurring of a cost or
Acceptance or Making of Any Deposit or Loan

Specific individuals are obligated to disclose these types of deals.

Statements of financial transactions and reportable accounts must be submitted to the designated authority by the following individuals at the end of each fiscal year:

To be an assessee;
The individual designated by law to fill a specific government position;
A governmental or quasi-governmental organisation;
Registration Act, 1908 Registrar or Sub-Registrar;
To the authority appointed under Chapter IV of the Motor Vehicles Act, 1988 for the registration of motor vehicles;

According to Section 2 of the Indian Post Office Act of 1898:

The Post Master General;
Right to Equal Treatment and Accountability in the Acquisition, Rehabilitation, and Resettlement of Land Act, 2013; the Collector mentioned in Section 3 of the Act;
The stock exchange specified in subsection (2) of the Securities Contracts (Regulation) Act, 1956;

As defined in Section 3 of the Reserve Bank of India Act of 1934:

An officer of the Reserve Bank of India;

This Act may be cited as the Depositories Act, 1996 (22 of 1996).
Institutions of Banking That Must Submit Forms
Individuals not included in (a) through (k) of this definition, as may be required.

Instructions for submitting SFT Forms

Along with the paper Form-V verification, the Post Master General, Registrar, or Inspector General may instead provide Form 61A on computer-readable media such as Compact Disc or Digital Video Disc (DVD).

Date by which SFT must be submitted

The statement must be provided by May 31, following the fiscal year, whereby the transaction is documented or registered.

An incorrect or incomplete record of a financial event

A person must notify the specified income-tax authority within ten days of learning of any error in the information supplied in the statement and provide the correct information.

However, the specified income-tax authority can also inform the individual of the discrepancy and provide him with a chance to correct the issue within thirty days of receiving notification of the discrepancy or within such extended term as may be allowed by the prescribed income-tax authority.

What happens if you break the rules in Section 285BA and the regulations surrounding it?

Section 271FA establishes a penalty for failing to provide a statement of financial transactions or reportable accounts. A fine of Rs. 500 per day might be imposed if payment is late.

A penalty of INR 1,000 per day shall be assessed beginning on the day after the day on which the period indicated in such notification for supplying the statement expires if the person fails to provide the statement within the prescribed time.

FAQs

1. What recourse do you have if false data enters the SFT?