Statement of Financial Transaction (SFT) Explained: Rules, Reporting, and Penalties

The Department of Income Tax has introduced the Statement of Financial Transactions (SFT), otherwise referred to as a reportable account, for the purpose of monitoring high-value transactions. The instrument allows the tax authority to keep a tab on certain types of financial transactions done throughout the year by an individual or entity.

The government collects the details of high-value transactions to ensure the compliance level is maintained and to reduce tax evasion. Let us look at the key provisions for SFT, filing requirements, reportable transactions, and penalties for non-compliance.

What is a Statement of Financial Transaction (SFT)?

As per Section 285BA of the Income Tax Act, 1961, certain prescribed entities must file an SFT to report high-value transactions. This report helps tax authorities track financial activities and detect any discrepancies in income tax filings.

Who is Required to File an SFT?

The Statement of Financial Transaction (SFT) must be filed by specific entities that engage in high-value transactions. These entities are responsible for reporting financial activities to tax authorities to maintain transparency and compliance.

Categories of Entities Required to File an SFT

Individuals and Businesses – Any taxpayer who engages in specified financial transactions that exceed the threshold limits.
Government Offices – Designated officials responsible for financial reporting within government institutions.
Local Authorities & Public Bodies – Entities involved in financial transactions that fall under reporting mandates.
Registrars & Sub-Registrars – Officials handling transactions related to the transfer of immovable property.
Motor Vehicle Registration Authorities – Authorities tracking high-value vehicle registrations.
Post Master General – Responsible for reporting large transactions involving postal services.
Land Acquisition Authorities – Collectors handling land transactions under the Land Acquisition Act, 2013.
Recognized Stock Exchanges – Exchanges monitoring and reporting high-value stock transactions.
Reserve Bank of India (RBI) Officers – Officials reporting regulated financial transactions.
Depositories & Financial Institutions – Institutions managing securities and investment transactions.
Prescribed Financial Institutions – Banks, NBFCs, and other regulated entities reporting large financial transactions.
Other Notified Entities – Any person or institution notified by the government as required to file an SFT.
Each of these entities plays a crucial role in financial compliance by reporting specific transactions that help in monitoring economic activities and ensuring tax laws are followed effectively.? The following entities are required to submit an SFT report to the prescribed authority:

Transactions That Must Be Reported Under SFT

Entities required to file an SFT must report financial transactions that cross specific thresholds set by tax authorities. These transactions include large cash deposits, high-value property deals, and substantial investments in securities or mutual funds. Reporting these transactions ensures transparency and helps in tracking potential tax evasion.

S.No	Nature of Transaction	Reporting Entity
1	Cash deposits or withdrawals of ₹50 lakh or more in a financial year from one or more current accounts	Banks & Co-operative Banks
2	Cash deposits of ₹10 lakh or more in a year (other than current accounts)	Banks, Co-operative Banks & Post Offices
3	Fixed deposits of ₹10 lakh or more (excluding renewals)	Banks, NBFCs, Nidhi Companies & Post Offices
4	Credit card payments of ₹1 lakh or more in cash or ₹10 lakh or more via other modes in a year	Banks & Credit Card Issuing Companies
5	Purchase of shares, bonds, debentures, or mutual fund units worth ₹10 lakh or more in a year	Companies & Mutual Fund Houses
6	Sale or purchase of immovable property worth ₹30 lakh or more	Registrar or Sub-Registrar
7	Foreign currency transactions exceeding ₹10 lakh in a year	Authorized Forex Dealers
8	Cash payments exceeding ₹2 lakh for the purchase of goods or services	Businesses covered under Section 44AB

Due Date for Filing SFT

Except for timely submission applications, the SFT attracts heavy penalties for late submission and/ non-compliance. The due date for an SFT to be filed is 31st May of the financial year following the transaction year. This date is applicable in respect of all reporting entities filing Form 61A itself electronically with the Director of Income Tax (Intelligence and Criminal Investigation).

In contrast, for certain past transactions, such as those involving demonetization (2016), a specific deadline: January 31, 2017, was set for compliance.

When making reports, entities must be timely and accurate or risk legal consequences and regulatory noncompliance. The SFT must be electronically submitted in Form 61A to the Director of Income Tax (Intelligence and Criminal Investigation) by May 31 of the year subsequent to the closing of the financial year.

For specific transactions related to demonetization (2016), the due date was January 31, 2017.

Penalty for Non-Compliance

Failure to file an SFT or providing incorrect details can lead to serious financial penalties. The Income Tax Act has outlined the following consequences for non-compliance:

-₹500 per day penalty for failure to furnish SFT within the prescribed time under Section 271FA.
-If a notice is issued under Section 285BA(5) for non-filing, and the statement is still not submitted within the specified period, the penalty increases to ₹1,000 per day.

Penalties for Inaccurate or False Reporting

-A ₹50,000 fine for submitting inaccurate information due to non-compliance with due diligence requirements under Rule 114H.
-An additional ₹5,000 fine if incorrect details are provided due to false information submitted by the reportable account holder.
-The reporting entity may recover this penalty from the account holder responsible for incorrect submissions.

Stricter Penalties from October 1, 2024

From October 1, 2024, the government will enforce stricter penalties, including:

-Higher fines for entities failing to furnish or update SFT details accurately.
-Potential legal action for deliberate misreporting.

How to Avoid Penalties?

To ensure compliance and avoid penalties:

-Keep accurate records of all reportable transactions.
-Submit SFT filings within the due date (May 31st of the following financial year).
-Verify transaction details before submission to avoid inaccuracies.

Noncompliance with SFT requirements can attract monetary penalties and tax authority investigations. Timely and accurate reporting is essential to ensure that no legal and financial issues arise due to negligence. Delay in filing of a SFT will attract the following penalties:

-₹50,000 fine for inaccurate information or failure to comply with due diligence norms under Rule 114H.
-An additional ₹5,000 penalty if incorrect details are provided due to false information from the reportable account holder.

From October 1, 2024, stricter penalties will apply for inaccuracies or failure to comply with reporting requirements.

Registration for Reporting Entities

Entities required to file an SFT must first register with the Principal Director General of Income-tax (Systems). This registration process ensures proper reporting and accountability for compliance with tax regulations.

Steps for Registration

Identify the Designated Director – Every reporting entity must appoint a responsible person to oversee compliance.
Obtain a Registration Number – The entity must communicate details of the designated director to the tax authorities.
Use Online Filing Systems – Registration and SFT filing are done electronically through the official Income Tax e-filing portal.
Maintain Updated Records – The registered entity must keep records of transactions and ensure timely submission of reports.

Who Can Be a Designated Director

Proper registration and appointment of a Designated Director are crucial for ensuring compliance with tax laws and avoiding penalties for non-reporting. Entities required to file an SFT must register with the Principal Director General of Income-tax (Systems) and appoint a Designated Director for compliance oversight. The designated director varies based on the entity type:

-Companies – Managing Director or a Board-appointed Director
-Partnership Firms – Managing Partner
-Proprietorships – Proprietor
-Trusts – Managing Trustee
-Other Entities – A responsible individual overseeing financial operations

Additional Reporting for Pre-Filing Income Tax Returns

Since 2021, the Central Board of Direct Taxes (CBDT) has expanded the scope of SFT reporting under Rule 114E to streamline the pre-filing of income tax returns. This enhancement aims to improve tax compliance by auto-populating return details based on reported financial transactions.

Types of Transactions Now Covered Under SFT for Pre-Filin

1. Capital Gains on Listed Securities & Mutual Fund Units: Recognized stock exchanges, depositories, clearing corporations, and registrar/share transfer agents are required to report capital gains from the sale of securities and mutual fund units.

2. Dividend Income: Companies distributing dividends must report dividend payouts, ensuring that taxpayers receive pre-filled details in their returns.

3.Interest Income: Banks, co-operative banks, non-banking financial companies (NBFCs), and post offices must report interest credited to accounts, making it easier for taxpayers to reconcile their income sources.

4. Specified Financial Transactions: High-value transactions, such as large deposits, withdrawals, and real estate purchases, are also reported for accurate tax assessments.

Benefits of Expanded SFT Reporting

Increases Transparency – Helps tax authorities verify income disclosures accurately.
Reduces Errors – Minimizes manual data entry errors in tax returns.
Enhances Compliance – Encourages taxpayers to report correct financial details and avoid scrutiny.
Speeds Up Tax Filing – Auto-populated return data simplifies the filing process for taxpayers.

This broader reporting framework not only strengthens compliance but also makes income tax return filing more efficient for individuals and businesses alike. From 2021 onwards, the CBDT (Central Board of Direct Taxes) expanded SFT reporting under Rule 114E to include:

Capital Gains on listed securities or mutual fund units
Dividend Income from companies
Interest Income from banks, NBFCs, and post offices

What Happens if an SFT Submission is Found Defective?

Remedy for Defective SFT Submission:-If the income-tax authority identifies a defect in the submitted SFT (Statement of Financial Transactions), they will notify the reporting entity or individual about the issue. Upon receiving the notification, the entity will be given a "30-day window" to correct and resubmit the statement.
In certain cases, if needed, the "income-tax authority may grant an extension" for rectification upon receiving a formal request.
However, "failure to correct the defect within the given timeframe"—whether the standard 30 days or the extended period—will result in the statement being considered "invalid". In such cases, the entity will face the "same consequences as non-furnishing" of the SFT, which could include penalties or compliance actions.

Conclusion

Statement of Financial Transaction (SFT) is important for tax compliance and tracing high volume transactions. Therefore understanding the various aspects of reporting including the requirements and deadlines would help the taxpayers and other persons to avoid penalties and contribute to a transparent tax system.

For individuals and companies, managing the SFT obligations provides a smooth road towards compliance and minimizes the risk of tax probes. Always keep yourself updated on the ever-changing landscape of tax laws to mitigate risks of non-compliance. The Statement of Financial Transactions (SFT) aids tax compliance and tracking high-end financial activity. Thus, by knowing the relevant reporting requirements and timelines, the taxpayers and entities can alleviate penalties and work towards a transparent tax setup.

Frequently Asked Questions (FAQs)

1. What is the purpose of SFT reporting?

SFT reporting helps tax authorities monitor high-value transactions, ensuring transparency and preventing tax evasion.

2. Who is required to file an SFT?

Entities like banks, financial institutions, registrars, stock exchanges, and certain businesses must file an SFT.

3. What are the key transactions that must be reported under SFT?

Cash deposits, property transactions, large investments in shares/mutual funds, foreign currency transactions, and high-value credit card payments.

4. What is the deadline for filing an SFT?

SFT must be filed by May 31st following the end of the financial year in which the transaction took place.

5. What are the penalties for non-filing or inaccurate filing of SFT?

Penalties range from ₹500 per day for late filing to ₹50,000 for inaccurate reporting, with stricter penalties from October 2024.

6. How can entities register for SFT filing?

Entities must register with the Principal Director General of Income-tax (Systems) and appoint a Designated Director.

7. Can taxpayers access their reported SFT transactions?

Yes, taxpayers can view SFT-reported transactions in their Annual Information Statement (AIS) on the income tax portal.

8. How does SFT impact tax return pre-filing?

SFT data is used for pre-filling income tax returns, reducing manual data entry and improving accuracy.

9. Are individuals required to file an SFT?

Individuals are not required to file an SFT unless they qualify as reporting entities (e.g., businesses covered under Section 44AB).

10. Can an incorrect SFT filing be rectified?

Yes, incorrect SFT filings can be revised within a stipulated time frame to avoid penalties.

Statement of Financial Transaction (SFT) Explained: Rules, Reporting, and Penalties