All banks and designated financial institutions are required to submit a return to the income tax department known as the ‘Specified Financial Statement (SFT). This SFT return encompasses the details of all financial transactions made by a taxpayer. The reported information is based on the PAN, which enables the tax authority to monitor financial activities and identify potential signs of tax evasion.
For instance, if an individual reports an annual income of ₹2 lakhs on their ITR, but records in the tax department reveal that this individual purchased gold worth ₹14 lakhs, it raises red flags. Although the purchases themselves are not illegal, they may prompt scrutiny, and the taxpayer could be asked to clarify the source of these funds.
Ramakrishnan Srinivasan, a former chief commissioner of the Income Tax Department, mentioned to ET Wealth Online:
- “I recall two cases. A friend working at a multinational bank filed an ITR and neglected to report his savings bank interest, which was around ₹25,000. His case was selected for scrutiny, and when the assessing officer reviewed his bank account, they discovered this oversight and added it to his taxable income, initiating penalty proceedings.”
- “In another instance involving a businessman, the SFT data indicated he had sold a parcel of land without declaring the capital gains from that sale. Consequently, the officer reopened the assessment, taxed the capital gains, imposed a penalty, and initiated prosecution proceedings.”
How is SFT utilized for tracking transactions?
The information provided in the SFT by reporting entities, such as banks, mutual funds, and registrars, is automatically incorporated into the Annual Information Statement (AIS) of the respective taxpayer.
Ritika Nayyar, a partner at Singhania & Co, explains that all data from SFT returns associated with a taxpayer’s PAN is auto-populated into their annual information statement (AIS).
Nayyar states: “The financial information provided by financial institutions in the SFT form presents a comprehensive overview of all transactions made by the taxpayer throughout the year. This, in turn, aids the taxpayer in verifying the details to be included in their ITR. It’s crucial to review the data in the AIS when preparing and filing the return, as it helps ensure that the ITR is filed accurately, leading to quicker processing of ITRs.”
Sanjoli Maheshwari, Executive Director at Nangia & Co LLP, notes: “These thresholds are applicable on an annual basis. Reporting entities must submit the SFT by May 31st of the year following the end of the financial year.”
What transactions are reported via SFT?
The following table shows transactions reported via SFT returns, which in turn is auto-populated in your AIS.
| No. | Nature of Transaction | Value of Transaction | Reporting Person/ Specified Person |
| 1 | Cash payment for the purchase of bank drafts or pay orders or banker’s cheques. | If the aggregate payment is Rs 10 lakh or more in a financial year. | Bank or Co-operative Bank |
| 2 | Cash payment for the purchase of pre-paid instruments issued by the RBI | If aggregate payment is Rs 10 lakh or more in a financial year | Bank or Co-operative Bank |
| 3 | Cash deposits in one or more current accounts of a person | If the aggregate amount is Rs 50 lakh or more in a financial year | Bank or Co-operative Bank |
| 4 | Cash withdrawals (including through bearer’s cheque) from one or more current accounts of a person | If the aggregate amount is Rs 50 lakh or more in a financial year | Bank or Co-operative Bank |
| 5 | Cash deposits in one or more accounts (other than a current account and time deposit) of a person | If the aggregate amount is Rs 10 lakh or more in a financial year | • Bank or Co-operative Bank • Post Master General |
| 6 | Receipt of cash payment for the sale, by any person, of goods or services of any nature, not being a transaction whose specific reporting is otherwise required | If the amount is more than Rs 2 lakhs | Any person who is liable for tax audit under Section 44AB |
| 7 | Payment in cash for one or more credit cards issued to that person | If aggregate payment is Rs 1 lakh or more in a financial year | Bank or Co-operative Bank or any other company or institution issuing credit card |
| 8 | Payment in any mode (other than cash) for one or more credit cards issued to that person | If aggregate payment is Rs 10 lakh or more in a financial year | Bank or Co-operative Bank or any other company or institution issuing credit card |
| 9 | One or more time deposits (other than a time deposit made through renewal of another time deposit) of a person | If the aggregate amount is Rs 10 lakh or more in a financial year | • Bank or Co-operative bank • Post Master General • Nidhi Companies • NBFCs |
| 10 | Receipt from any person for acquiring bonds or debentures issued by the company or institution (other than the amount received on account of renewal of the bond or debenture issued by that company) | If the aggregate amount is Rs 10 lakh or more in a financial year | A company or institution issuing bonds or debentures |
| 11 | Receipt from any person for acquiring shares (including share application money) issued by the company | If the aggregate amount is Rs 10 lakh or more in a financial year | A company issuing shares |
| 12. | Buyback of shares from any person (other than the shares bought in the open market) | If the aggregate amount is Rs 10 lakh or more in a financial year | A company listed on a recognized stock exchange purchasing its own securities |
| 13. | Receipt from any person for acquiring units of one or more schemes of a Mutual Fund (other than the amount received on account of transfer from one scheme to another scheme of that Mutual Fund) | If the aggregate amount is Rs 10 lakh or more in a financial year | A trustee of a Mutual Fund or such other authorized person managing the affairs of a Mutual Fund |
| 14. | Purchase or sale by any person of immovable property | If transaction value or valuation by Stamp Valuation Authority is Rs 30 lakh or more | Inspector-General or Registrar or Sub-Registrar under the Registration Act, 1908 |
| 15. | Receipt from any person for sale of foreign currency including credit of such currency to a foreign exchange card | If the aggregate amount is Rs 10 lakh or more in a financial year | •Authorised Dealer •Money Changer •Offshore Banking Unit • Any other person authorised to deal in foreign exchange or foreign securities |
| 16. | Expense in foreign currency through a debit or credit card or through the issue of Travellers Cheque or Draft or any other instrument. | Aggregating to Rs 10 lakh or more in a financial year. | •Authorised Dealer • Money Changer •Offshore Banking Unit Any other person authorised to deal in foreign exchange or foreign securities |
Source: Singhania & Co
What are the consequences of not reporting incomes reflected in the SFT and AIS?
Maheshwari from Nangia & Co LLP indicates: “If a taxpayer fails to disclose transactions in their Income Tax Return (ITR) or if there is a discrepancy between the transactions reported in the SFT and those reflecting in the AIS, it may lead to several repercussions, including:
- Tax notices: The Income Tax Department may issue a notice asking for clarification regarding high-value financial transactions listed in the taxpayer’s AIS. Such notices are generally issued to confirm whether the transactions have been properly disclosed in the taxpayer’s ITR and may necessitate the filing of a revised or ITR-U in cases of non-disclosure or partial disclosure in the filed return.
- Selection for scrutiny: If the information reported in the SFT does not match the income declared in the ITR, or if the taxpayer has failed to file the ITR when required, or if the response to a notice is unsatisfactory and necessitates further scrutiny, the Tax Authorities may issue a notice to verify the completeness and accuracy of the income reported.
- Penalties for underreporting or misreporting income: Following scrutiny, if the Tax Authorities issue an order that adjusts income by adding to it and determining additional tax liabilities with any applicable interest, a penalty may also be imposed for underreporting or misreporting. This penalty can range from 50% to 200% of the tax owed (in cases of underreporting and misreporting of income).
Maheshwari highlights that taxpayers could face prosecution and imprisonment for willfully or intentionally evading taxes:
Offence
Willful attempt to evade tax exceeding ₹25 lakh
Rigorous imprisonment from 6 months to 7 years, plus a fine
Other instances of tax concealment or misreporting
Imprisonment from 3 months to 2 years, plus a fine
Source: Nangia & Co LLP
Maheshwari adds: “However, it’s important to note that there are provisions that may prevent the initiation of such proceedings and allow for compounding, subject to specific guidelines and prior approval from the relevant Tax Authority.