Interactive Guide to SFT Reporting

Understanding Section 285BA of the Income Tax Act, 1961

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1. Overview of SFT

The Statement of Specified Financial Transactions (SFTs) is a critical mechanism in India's tax system, established under Section 285BA of the Income Tax Act, 1961. It mandates specified entities to report high-value financial transactions to the Income Tax Department (ITD).

Key Objectives:

  • 🎯Monitor high-value transactions by taxpayers.
  • 💰Curb the issue of black money.
  • 📈Widen the national tax base.
  • 🛡️Improve integrity and transparency of the Indian financial ecosystem.

SFT data is used for intelligence gathering, risk profiling, and targeted enforcement. Information filed in Form 61A is reflected in the taxpayer's Annual Information Statement (AIS) and Form 26AS, aiding in accurate ITR filing.

2. Core Principles of SFT Reporting

Section 285BA broadly covers transactions like purchase/sale of goods, property, rights; rendering services; works contracts; investments; expenditures; and loans/deposits. This wide scope allows ITD to capture diverse financial movements.

For most SFTs (exceptions: immovable property, cash receipts for sales), amounts must be aggregated to check if thresholds are met. This prevents splitting transactions to avoid reporting.

  • All accounts of the same nature for a person in a FY are aggregated (e.g., multiple savings accounts in one bank).
  • All transactions of the same nature for a person in a FY are aggregated (e.g., multiple share purchases from one company).

If an account or transaction is in multiple names (e.g., joint account), the entire value is attributed to each person for threshold checking. This increases scrutiny on jointly held assets and means individuals can be flagged even if their personal share is below the threshold, if the total joint transaction crosses it.

Note: These principles are designed to capture the true economic substance of financial activity and prevent tax evasion through complex structuring.

3. Reportable Transactions Explorer

Rule 114E of the Income Tax Rules, 1962, details specific reportable transactions. Explore them below. This interactive tool helps you filter and understand the various SFTs, their thresholds, and who is responsible for reporting.

Transaction Threshold Distribution

This chart shows the number of SFT categories associated with different monetary threshold levels.

4. Bonus Shares & SFT Reporting

Is the issuance of Bonus Shares by a company reportable under SFT by the issuing company?

Generally, NO.

ℹ️ Bonus shares are issued without monetary consideration from shareholders. They represent capitalization of company reserves (a capital restructuring).

🚫 SFT Category "Receipt for acquiring shares" (Sl. No. 8 in Rule 114E) implies the company receives money for issuing shares. This doesn't happen with bonus shares.

💸 No immediate tax liability for shareholders on receiving bonus shares. Cost of acquisition is usually nil. Tax (capital gains) arises only upon sale of bonus shares.

🔍 While the issuance itself is not directly reported by the company under SFT, the ITD gains visibility through:

  • Capital gains reported by shareholders on sale (pre-filled in ITR).
  • Reporting by intermediaries like depositories for "Depository Transactions" (movement/trading of shares).

✅ Transactions like IPOs, Rights Issues (where company receives money) or Share Buybacks (company pays money) are reportable if thresholds are met.

5. SFT Filing Procedures & Compliance

SFT must be filed in Form 61A. The process involves several key steps. Adherence to procedures and timelines is crucial.

Key Steps in SFT Filing:

1
Register on Income Tax e-filing portal as "Reporting Entity".
2
Principal Officer creates login and provides organizational details.
3
Obtain unique ITDREIN (Income Tax Department Reporting Entity Identification Number). Mandatory if reportable transactions exist.
4
Prepare SFT report in prescribed XML format (as per ITD schema).
5
Validate data using ITD utility to correct errors.
6
Digitally sign Form 61A with Class 2 or 3 DSC.
7
Upload to e-filing portal. Receive acknowledgment.

Due Date: May 31st of the assessment year following the financial year of the transaction. (e.g., FY 2023-24 transactions reported by May 31, 2025).

If errors are found, a revised statement can be submitted. If ITD notifies a defect, it must be rectified within 30 days. Failure to rectify (post Sep 1, 2019) is treated as inaccurate information.

If no reportable transactions, experts often recommend filing a Nil SFT. Alternatively, use the "SFT Preliminary Response" on the e-Filing portal to indicate non-reportability for the year.

6. Consequences of Non-Compliance

Failure to comply with SFT reporting obligations can lead to significant penalties. It's crucial to be timely and accurate.

⚠️ Failure to Furnish SFT by Due Date:

₹500 per day of default.

⚠️ Failure After Notice:

If default continues after ITD notice (30 days to comply), penalty increases to ₹1,000 per day from expiry of notice period.

⚠️ Inaccurate Statement:

₹50,000 penalty. (Includes unrectified defects post Sep 1, 2019).

⚠️ For Eligible Investment Funds:

Failure to furnish required statements/info can attract ₹5,00,000 penalty.

Beyond direct penalties, non-compliance can trigger deeper investigations, audits, and reputational damage.

7. Key Takeaways & Recommendations

SFT reporting is a cornerstone of India's tax transparency efforts. Issuance of bonus shares by the company is generally NOT a direct SFT trigger for the issuer. The SFT regime is dynamic, requiring continuous adaptation.

Recommendations for Robust Compliance:

  • ⚙️Continuous Monitoring & System Integration: Integrate SFT tracking with ERP systems for proactive identification of reportable transactions.
  • 🗂️Accurate Data Management: Maintain meticulous records for all financial transactions, especially share-related activities.
  • 🗓️Timely Filing & Prompt Rectification: Adhere strictly to the May 31st due date and rectify any ITD-notified defects within 30 days.
  • ✅Leverage ITD Functionalities: Use "SFT Preliminary Response" if no transactions are reportable.
  • 🔄Stay Updated: Regularly consult CBDT notifications and the ITD Reporting Portal for changes.

Proactive compliance mitigates risks, enhances reputation, and ensures smooth operations.