Furnishing of Statement of Financial Transaction

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Furnishing of Statement of Financial Transaction

The CBDT vide Notification No. 16/2021, dated March 12, 2021, has issued the ‘Income-tax (4th Amendment) Rules, 2021’ to further amend Rule 114E of the Income-tax Rules, 1962. Banks, stock exchanges and companies will have to share data on large financial transactions with the Income Tax Dept as frequently as sought by a designated official, according to the Income-tax (4th Amendment) Rules, 2021. With these amendments, CBDT mandated the furnishing of Statement of Financial Translations (SFT) to enable pre-filling of return of income.

Synopsis of Notification

The following changes or amendments in Rule 114E notified by Income-tax (4th Amendment) Rules, 2021:

According to the Income-tax (4th Amendment) Rules, 2021, the sub-rule 5A inserted by the Income-tax department for pre-filling the return of income, a statement of a financial transaction relating to capital gains on transfer of listed securities or units of mutual funds, dividend income, and interest income.

Overview of Statement of Financial Translations (SFT)

Statement of Financial Translations or SFT refers to information related to certain high-value transactions which specified persons are required to report to the income tax department. The SFT was earlier known as ‘Annual Information Return (AIR)’. The objective of SFT was to curb black money and widening the tax base.

Section 285BA of the Income Tax Act

The specified reporting entity/person must furnish a statement of financial transaction or reportable account as per Section 285BA of the Income Tax Act,1961.

Rule 114E of the Income Tax Rules

To furnish a statement of financial transactions, specified forms are required to be submitted as per Rule 114E of Income Tax Rules, 1962 referred to as “Statement of Financial Transaction (SFT). Rule 114E of the Income Tax Rules, 1962 specifies that the statement of financial transaction is furnished in Form No. 61A

Furnishing of Statement of Financial Transaction

As mentioned above, the statement of the financial transaction needs to be furnished under sub-section (1) of section 285BA of the Income Tax Act shall be furnished in respect of a financial year in Form No. 61A.

Amendment in Column 3 of sub-rule (2) of rule 114E

Revised value of transaction and Class of Reporting person

As per the Income-tax (4th Amendment) Rules, 2021, Amendment is brought under Column 3 of sub-rule (2) of rule 114E. The following modification is made.

Act No. of the Reserve Bank of India Act, 1934 is corrected from (6 of 1934) to (2 of 1934).

Revised Table Contents – Nature and Value of Transaction

One or more time deposits (other than a time deposit made through renewal of another time deposit) of a person aggregating to ten lakh rupees or more in a financial year of a person.

  • A banking company or a co-operative bank to which the Banking Regulation Act, 1949 (10 of 1949) applies (including any bank or banking institution referred to in section 51 of that Act)
  • Post-Master General as referred to in clause (j) of section 2 of the Indian Post Office Act, 1898 (6 of 1898);
  • Nidhi referred to in section 406 of the Companies Act, 2013 (18 of 2013);
  • The non-banking financial company which holds a certificate of registration under section 45-IA of the Reserve Bank of India Act, 1934 (2 of 1934), to hold or accept deposit from public

Substitution of sub-rule (5A) in Rule 114E of the Income Tax Rules

Rule 5 of Rule 114E of the Income Tax Rules specifies the statement of financial transactions shall be furnished on or before the 31st May, immediately following the financial year in which the transaction is registered or recorded.

New Rule Rule 114E (5A) – Pre-filling the return of income

The CBDT announced that for making pre-filled income tax returns, agencies like stock exchanges, depositories, clearing corporations, registrars, banks, companies, Post Master General and non-bank lenders have to issue statements of financial transactions by their clients “in such form, at such frequency, and in such manner, as may be specified” by a designated official.

Principal Director General of Income Tax (Systems) or the Director-General of Income Tax (Systems), are authorized to seek such information with the approval of the Central Board of Direct Taxes (CBDT), said the notification. Capital gains from the sale of listed shares as well as dividend and interest income are covered under this.

Amendment in Sub Rule 6 – Obtaining of Registration Number

The reference of the new sub-rule (5A) as inserted above is added in sub-rule (6).

Every reporting person furnishing a statement of the financial transaction need to communicate to the Principal Director General of Income-tax (Systems) the name, designation, address and telephone number of the Designated Director and the Principal Officer and obtain a registration number.

Principal Director General of Income Tax (Systems) or the Director-General of Income Tax (Systems) with the approval of the Board will specify the following details in which the statement needs to furnish by the reporting persons.

  • Form
  • Time Limit or due date
  • Frequency, and
  • Manner

Persons Required to Report the Specified Financial Transactions

Those persons who are required to report the specified financial transactions are called ‘specified persons’.

Specified  persons

Section 285BA(1) prescribes the following persons as ‘specified  persons’ for furnishing SFT

  • An assessee i.e. who is liable to pay tax under the Income Tax Act
  • Government Office
  • A local authority or other public body or association
  • Registrars or Sub-Registrars
  • Motor Vehicles registration authority
  • Post Office
  • The collector in case of Land acquisitions etc.
  • Recognised stock exchanges
  • Reserve Bank of India
  • A Depository
  • Any prescribed reportable financial Institution

Revised List of Specified  persons

A New Sub-Rule (5A) is inserted in Rule 114E to provide for reporting the following incomes by the specified reporting persons

Sl. No Nature of Transaction Class of Person (reporting person)
1 Capital gains on transfer of listed securities or units of Mutual Fund
  • Recognized Stock Exchange
  • Depository as defined in clause (e) of sub-section (1) of section 2 of the Depositories Act, 1996 (22 of 1996)
  • Recognized Clearing Corporation
  • Registrar to an issue and share transfer agent registered under subsection (1) section 12 of the Securities and Exchange Board of India Act, 1992 (15 of 1992)
2 Dividend income A company
3 Interest income
  • A banking company or a co-operative bank to which the Banking Regulation Act, 1949 (10 of 1949) applies (including any bank or banking institution referred to in section 51 of that Act)
  • Post-Master General as referred to in clause (j) of section 2 of the Indian Post Office Act, 1898 (6 of 1898).
  • The non-banking financial company which holds a certificate of registration under section 45-IA of the Reserve Bank of India Act, 1934 (2 of 1934), to hold or accept deposit from public

Reportable Persons

Out of the above-specified persons, Rule 114E prescribes the following ten types of persons as ‘reportable persons’

  • A Bank including a Co-operative Bank
  • Post Office/Post Master General
  • A Nidhi Company
  • Non- Banking Financial Companies (NBFCs)
  • Credit Card Issuing Companies
  • A Company
  • Mutual Funds
  • Authorized person under Foreign Exchange Management Act, 1999
  • Registrar or Sub-Registrar
  • Any person who is liable for audit under section 44AB of the Act

Specified financial transactions are required to be reported

As per Section 285BA (3), “specified financial transaction” means the following:

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

Filing of Form 61A

The statement of the financial transaction shall be filed in Form 61A electronically on the e-filing portal of the Income Tax Department. With effect from 9th April 2018, registration, statement upload and all other facilities for Form No. 61A has been migrated from the e-filing portal to the “Reporting Portal”

The official notification pertaining to the Income Tax 4th Amendment Rule is as follows:

notification_16_2021

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