SFT Transactions: What You Need to Know
What is SFT?
SFT, or Statement of Financial Transactions, is a mechanism implemented by the Indian Income Tax Department to monitor high-value financial transactions.
This system is designed to track large transactions and ensure that taxpayers report them correctly. By doing so, the tax department aims to reduce tax evasion and improve financial transparency.
How to Report SFT?
Who Files SFT?
Specified reporting entities, such as
- Banks
- financial institutions
- registrars
- post offices, and
- stock exchanges are responsible for filing SFT.
Which Forms Are Used?
- Form 61A: Used by most reporting entities for SFT filing.
- Form 61B: Used by certain financial institutions for specified transactions.
Deadline for Filing:
The reports must be submitted by May 31 of the financial year following the transactions.
- How to Submit Reports:
- Reports are submitted electronically via the SFT module on the Income Tax portal.
- All data must be accurate and in the prescribed format.
For Individuals:
- Transactions reported under SFT are automatically reflected in the Form 26AS and the Annual Information Statement (AIS).
- Individuals can use these to cross-verify their financial activities with their tax filings.
Reportable Financial Transactions
Several types of financial transactions exceeding certain thresholds are reportable under SFT. Here’s a breakdown of these transactions:
Cash Transactions:
Cash Deposits:
If you deposit more than ₹10 lakh in cash in a single day into your bank account, this transaction will be reported under SFT.
- Example: If you deposit ₹12 lakh in cash at your bank in one day, the bank will report this to the tax department.
Cash Withdrawals:
Similarly, if you withdraw more than ₹10 lakh in cash in a single day from your bank account, this is also reportable.
- Example: Withdrawing ₹15 lakh in cash from your bank account in one day will be flagged under SFT.
Non-Cash Transactions:
Purchase of Bank Drafts, Pay Orders, or Prepaid Instruments:
Transactions exceeding ₹10 lakh in a day also need to be reported.
Time Deposits:
Any deposit exceeding ₹10 lakh in a single day is reportable.
Credit Card Payments:
If you make a credit card payment exceeding ₹10 lakh in a day, it will be flagged.
- Example: Paying ₹12 lakh towards your credit card balance in one day is a reportable transaction.
Share and Bond Purchases:
Buying shares or bonds worth over ₹10 lakh in a day is reportable under SFT.
Certain Real Estate Transactions:
Real estate transactions exceeding ₹30 lakh are also reportable.
- Example: Buying a property worth ₹35 lakh will be reported.
High-Value Goods and Services Transactions:
Purchases over ₹10 lakh in a single day will also be reported.
- Example: Purchasing a luxury car worth ₹15 lakh will trigger an SFT report.
Impact on Taxpayers
All the information reported under SFT is reflected in the taxpayer’s Form 26AS, which is a consolidated annual information statement (AIS). This helps you reconcile your financial transactions and ensures that your tax filing is accurate.
Example: If you deposited ₹12 lakh in cash, this will be shown in your Form 26AS, and you’ll need to ensure it aligns with your reported income.
Importance of Accurate Reporting
Accurate SFT reporting is essential to avoid penalties or further scrutiny from the tax authorities. The Indian Income Tax Department is becoming more efficient in tracking transactions, thanks to advancements like artificial intelligence and robotics. Misreporting or failing to report high-value transactions could lead to penalties or audits.
Example: If you don’t report a large cash deposit correctly, the tax authorities may flag your account for an audit, which can lead to time-consuming processes and fines.
Conclusion
The shift from manual to computerized scrutiny, and now the use of AI and robotics, has made the monitoring of financial transactions by the Income Tax Department more efficient than ever. With this increased efficiency, it has become more important than ever to consult professionals before entering into high-value transactions. Professionals can help ensure that your financial activities are properly reported, which will keep you compliant and prevent any unnecessary issues.