The Income Tax Act of India recently framed a new idea to furnish a Statement of Financial Transactions (SFT) to monitor the taxpayers and their high-value transactions, previously known as Annual Information Return (AIR). The Indian Government has attempted to control the issues of black money with this statement under Section 285BA of the Income Tax Act.

Are you wondering about the importance of SFT transactions in Form 26AS while filing your tax returns? This article will give you a detailed guide about its specified transactions and how to submit them.

The Indian economy faces a significant threat in the form of black money accumulation. Therefore the Indian Government has taken several initiatives to curb such activities. One such initiative came as the ‘Annual Information Return (AIR)’ in 2003 under Section 285BA of the Income Tax Act. The Finance Act 2014 later replaced it, renaming it as 'obligation to furnish statement of financial transaction or reportable account'.

According to this section, specified entities (filers) must furnish a statement of financial transaction or reportable account regarding their specified financial transactions. As of June 2020, the Government has revised Form 26AS to include specified transactions in the Statement of Financial Transactions (SFT).

If you have any such transactions in your FY, they will reflect in “Part E” of your new 26AS. Thus, taxpayers can submit an SFT transaction in Form 26AS by filling out Form 61A. It enables the IT Department to keep track of the transactions and avoid illegal activities.

While learning about the details of the Statement of Financial Transactions, you should know about the specified transactions you need to report under Section 285BA. In addition, transactions related to the following areas shall be considered here.

• Purchase, sale or exchange of property or interest in a property
• Any services
• Works contract
• Expenditure incurred or an investment made
• Accepting or taking any deposit or loan

The taxpayers must submit SFT through either Form 61A or Form 61B. This entire process is online, with a digital signature certificate to the Director or the Joint Director of Income-tax. A Post Master General, a Registrar, or an Inspector General oversee these. In addition, you can use the following steps for submitting an SFT transaction in Form 26AS. 

• Step 1: Visit Income Tax e-filing portal and register your account. Next, log in with your credentials and go to My Account. 
• Step 2: Now, click on Manage ITDREIN (Income Tax Department Reporting Entity Identification Number). Next, go to ‘Generate New ITDREIN’. 
• Step 3: You will have to select the form type and category of reporting entity next. After doing this, you need to click on ‘Generate ITDREIN’.
• Step 4: This will generate your ITDREIN, and you will receive a confirmation SMS and email on your registered mobile number and email id. 
• Step 5: Once this ITDREIN starts appearing on your account, go to the e-file and click on ‘Upload Form __ (Appropriate Form No based on your selection). This will open a new form. 
• Step 6: Verify PAN, Form Name, Reporting entity category, Financial Year, Half-year and others. Keep your documents handy to enter the correct information. 
• Step 7: After successfully validating the details, upload them with your digital signature certificate. You will receive confirmation emails and be informed about whether the uploaded file was accepted or rejected. 

Now that you know the steps for submitting your SFT file, you must be wondering about the last date for filing SFT. You need to submit SFT in Form 61A on or before 31st May of the FY. In the case of SFT in Form 61B, one needs to submit SFT files on or before 31st May of the following year for every calendar year.

While dealing with SFT transactions in Form 26AS, it is essential to avoid mistakes and errors. If the associated income tax authorities find these files defective, they need to report to the reporting person or people with power to rectify the defect. They need to remedy the mistakes within 30 days from giving such intimation. 

However, the concerned income tax authority can extend the due date for rectification of the statement of financial transaction if an application is made in advance. If the concerned taxpayer cannot rectify the defect within 30 days or the extended period, their SFT statements will become invalid. Charges and penalties of SFT non-furnishing might apply in this case.

Section 285BA of the Indian Income Tax Act describes the SFT transaction in Form 26AS. Besides the regulations and features of such transactions, the law underlines the consequences of failing to comply.

Failure to Furnish SFT

If you fail to furnish your SFT within the due date, your concerned income-tax authority will send a notice urging you to furnish SFT within 30 days. The penalty for non-filing of SFT within this due date is ₹ 500 every day of default. Furthermore, if you fail to furnish your report even within the due date of the extended period, you will be charged a penalty of ₹ 1,000 every day of default.

Incorrect Information

As your SFT deals with primary sensitive financial information, including correct data to avoid future complications is mandatory. Therefore, if you find any error or inaccuracy in the provided information after furnishing your report, you need to report the inaccuracy to your concerned income-tax authority or specified authority. You will need to deliver the correct information within ten days.

Provision for Penalty

In certain circumstances, your reporting financial institution might charge a penalty of up to ₹ 50,000 if you provide inaccurate information in your SFT. These circumstances are as follows.

• If your failure to comply with the prescribed due diligence requirement is causing the inaccuracy
• In case you are aware of the inaccuracy at the time of furnishing the report but choose not to inform the income tax authority
• If you learn about the inaccuracy after furnishing the report but fail to inform the income tax authority within ten days

Thus, as you can see, SFT transactions in Form 26AS is a significant way of keeping tabs on the fair and just financial transactions of Indian citizens. In addition, section 285BA makes it mandatory for specific people to maintain a report of their detailed economic activities in a financial year. It helps both the Government and the citizens to avoid unfair financial activities.