High-value transactions in India refer to certain financial transactions that are of a significant amount and are mandatorily reported to the Income Tax Department (ITD) by banks, financial institutions, and other entities as specified under the Income Tax Act. These transactions are tracked through the Annual Information Return (AIR) and Statement of Financial Transaction (SFT). The aim is to identify and monitor large transactions that might indicate unreported income or tax evasion.
Some examples of high-value transactions include:
- Large Cash Deposits or Withdrawals: Deposits or withdrawals of a large sum of cash from or in bank accounts.
- Property Transactions: Purchase or sale of immovable property exceeding a certain threshold.
- High-Value Investments: Investments in mutual funds, bonds, or shares above a specified limit.
- Large Credit Card Payments: Payments made against credit cards that exceed a certain limit.
- Purchase of Foreign Currency: Purchases involving substantial amounts of foreign currency.
- Fixed Deposits: Opening or renewing fixed deposits exceeding a certain amount.
Avoiding high-value transaction reporting is not advisable as it can be construed as tax evasion or an attempt to conceal financial activities. However, you can manage your transactions in a manner that doesn’t unnecessarily trigger these reports, such as:
- Stay Informed: Know the thresholds for various transactions and plan your financial activities accordingly.
- Use Cheques or Digital Transactions: Instead of dealing in large amounts of cash, use cheques or digital transaction modes which are more transparent.
- Spread Investments: Spread your investments over time or across different financial years to avoid crossing the threshold in a single year.
- Proper Documentation: Keep proper documentation and records of your transactions, especially if they are legitimate and for genuine purposes.
- Consult a Professional: If you have a complex financial portfolio, it may be wise to consult Income tax professional or practicing CA in India for advice on managing your transactions.
Remember, these strategies are about managing your transactions wisely within the legal framework, not evading the reporting requirement. Any attempt to deliberately avoid reporting might lead to scrutiny from the Income Tax Department.
Navigating the Complexities of Statement of Financial Transaction (SFT) in Indian Income Tax
Introduction:
The Indian Income Tax Law has established a critical tool for tracking high-value transactions – the Statement of Financial Transaction (SFT). This mechanism helps tax authorities gather information on significant financial activities undertaken by individuals and entities, aiming to enhance transparency and curb tax evasion.
Understanding SFT:
SFT, also known as reportable account statement, is mandated under Section 285BA of the Income Tax Act, 1961. It is required to be filed by certain prescribed entities, detailing specified high-value transactions recorded during the financial year. This initiative is a part of the government’s broader strategy to broaden the tax base and ensure tax compliance.
Who Needs to File SFT?
Entities required to file SFT include:
- Assessees
- Government offices
- Local authorities, public bodies, and associations
- Registrars and sub-registrars
- Authorities in charge of motor vehicle registration
- Post Master Generals
- Collectors
- Stock exchanges
- Officers of the Reserve Bank of India
- Depositories
- Prescribed reporting financial institutions
Types of Reportable Transactions:
The SFT covers a wide range of transactions. Some notable ones include:
- Cash deposits and withdrawals in bank accounts exceeding certain thresholds.
- Payments against credit card bills above specified limits.
- Investments in shares, mutual funds, bonds, or debentures exceeding a certain amount.
- Purchase or sale of immovable property valued at or above specific thresholds.
- Transactions involving foreign currency.
- Receipt of cash payment for sale of goods or services above a set limit.
Compliance and Reporting of High Value Transactions in India:
Entities responsible for filing SFT must do so electronically, adhering to the prescribed format and deadlines. The report is submitted to the Director of Income-tax (Intelligence and Criminal Investigation) or equivalent authority. The deadline for submission is generally the 31st of May following the financial year in which the transaction occurred.
Consequences of Non-Compliance:
Failing to file an SFT or submitting inaccurate information can result in substantial penalties. The Act specifies penalties for non-furnishing, inaccurate furnishing, and failure to rectify inaccuracies in the submitted information.
The Statement of Financial Transaction (SFT) in India involves reporting various high-value transactions to the Income Tax Department. The threshold limits for these transactions, are as follows:
- Cash Transactions:
- Payments made in cash for purchase of bank drafts, pay orders, or banker’s cheques aggregating to ₹10 lakh or more in a financial year.
- Payments made in cash aggregating to ₹10 lakh or more during the financial year for purchase of pre-paid instruments issued by the Reserve Bank of India.
- Cash deposits or cash withdrawals (including through bearer’s cheque) aggregating to ₹50 lakh or more in a financial year in or from one or more current account of a person.
2. Investments in Mutual Funds:
- Receipt from any person of an amount aggregating to ₹10 lakh or more in a financial year for acquiring units of one or more schemes of a Mutual Fund.
3. Foreign Currency Transactions:
- 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 travelers cheque or draft or any other instrument, of an amount aggregating to ₹10 lakh or more during a financial year.
4. Bond and Share Transactions:
- Receipt from any person of an amount aggregating to ₹10 lakh or more in a financial year for acquiring bonds or debentures issued by a company or institution.
- Receipt from any person of an amount aggregating to ₹10 lakh or more in a financial year for acquiring shares issued by a company.
- Buy back of shares from any person (other than the shares bought in the open market) for an amount or value aggregating to ₹10 lakh or more in a financial year.
5. Bank Deposits and Time Deposits:
- Cash deposits aggregating to ₹10 lakh or more in a financial year in one or more accounts (other than a current account and time deposit).
- One or more time deposits (other than a time deposit made through renewal of another time deposit) of a person aggregating to ₹10 lakh or more in a financial year.
6. Credit Card Payments:
- Payments made by any person of an amount aggregating to ₹1 lakh or more in cash; or ₹10 lakh or more by any other mode against bills raised in respect of one or more credit cards.
7. Property Transactions:
- Purchase or sale by any person of immovable property valued by the stamp valuation authority at ₹30 lakh or more.
8. Receipt of Cash Payment for Goods and Services:
- Receipt of cash payment exceeding ₹2 lakh for sale by any person of goods or services of any nature.
It’s important for entities and individuals engaging in these types of transactions to be aware of these thresholds, as crossing them necessitates reporting to the Income Tax Department. Failure to report such transactions can result in penalties under the Income Tax Act.
Recent Amendments:
The Finance Act of 2023 has brought amendments to the rules governing SFT, expanding the scope of reportable transactions and introducing specific penalties for various types of non-compliance.
Conclusion:
The Statement of Financial Transaction is a crucial tool in the Income Tax Department’s arsenal for ensuring tax compliance. It requires entities to be vigilant and maintain accurate records of high-value transactions. Understanding and adhering to the SFT guidelines is vital for all entities involved in significant financial transactions.
