Do you know that all your significant financial transactions are tracked by the Income Tax Department? Everything from large cash transactions in bank accounts to credit card expenses, property purchases, sales, and foreign travel is being monitored.
What is SFT and Why is it Necessary?
All banks and certain financial institutions are required to file a special report with the Income Tax Department called the Specified Financial Transaction (SFT) return. This report contains details of major financial transactions made by taxpayers. Since the information is linked to a taxpayer’s PAN, the tax department can easily track their financial activities and identify tax evasion, if any.
The details reported in the SFT by banks, mutual funds, registrars, and other institutions are automatically reflected in the taxpayer’s Annual Information Statement (AIS). These specified institutions must submit these details by 31 May of the following financial year.
This year, the last date for filing Income Tax Returns (ITR) for Assessment Year (AY) 2025-26 has been extended to 15 September 2025. The government has taken this step to ensure that taxpayers receive all the necessary data related to TDS, AIS, and SFT on time, allowing them to file returns without mistakes. However, it is crucial that taxpayers accurately report all their transactions. A discrepancy between the information recorded in the SFT and that provided in your ITR can lead to substantial penalties and departmental actions.
The Mechanism of SFT Reporting
The tax department has implemented the SFT system to monitor certain high-value transactions, previously referred to as the Annual Information Return (AIR). As explained by CA (Dr.) Suresh Surana, “In accordance with Section 285BA read with Rule 114E of the Income-tax Act, 1961, the Income Tax Department tracks certain high-value transactions through the mechanism of Specified Financial Transactions (SFT) reporting.” The obligation to furnish SFT lies with specified reporting entities such as banks, financial institutions, registrars, companies, and other prescribed persons. Essentially, this responsibility does not rest with taxpayers; it is on the banks, financial institutions, mutual fund houses, and other specified entities to report the transactions made each financial year using Form 61A.
Last Date for Filing:
The last date for filing SFT is 31 May of the next financial year. For example, all reporting for FY 2024-25 must be completed by 31 May 2025.
Which Major Financial Transactions are Tracked?
Dr. Surana notes that many transactions are under the scrutiny of the department under SFT. Here are five significant transactions that are closely monitored:
- Large Cash Transactions: Cash deposits/withdrawals of more than ₹50 lakh annually in one or more current accounts or cash deposits exceeding ₹10 lakh in savings accounts.
- Credit Card Payments: Payments exceeding ₹1 lakh in cash or total payments of more than ₹10 lakh annually.
- Investment-Related Purchases: Purchase of shares, mutual funds, debentures, bonds, or RBI bonds that exceed a specified limit.
- Property Transactions: Purchase or sale of any immovable property (like flats or land) worth ₹30 lakh or more.
- Foreign Exchange/Travel Expenses: Purchase of foreign currency or expenditures of ₹10 lakh or more on foreign travel.
This information is directly relayed to the tax department and matched with the declared income and expenses of the taxpayers.
Penalties for Non-Compliance
According to Dr. Surana, the penalties for failing to comply with SFT regulations are severe:
- Failure to Furnish SFT: A penalty of ₹500 per day of default under Section 271FA, which increases to ₹1,000 per day upon expiration of the notice period.
- Furnishing Inaccurate SFT: A penalty of up to ₹50,000.
- For Taxpayers: Non-reporting or discrepancies may lead to issuance of notices, reassessment proceedings, and added scrutiny of the income.
This means that:
- Failure to report on time incurs a penalty of ₹500 for every day.
- Continued delays after notice raise penalties to ₹1,000 per day.
- Providing incorrect information could result in penalties up to ₹50,000 if not corrected.
Impact on Taxpayers
If there is a discrepancy between the declared income and the transactions recorded in the SFT, the department may issue notices, reassess accounts, and add unreported income.
A Message for Taxpayers
It is clear that in today’s digital age, the tax department keeps a close watch on every major transaction. Taxpayers are advised to ensure the following while filing their ITR:
- The transactions recorded in the SFT must match their declared income/investments.
- Keep all required documents (receipts, statements, policy numbers) organized and ready.
- Accurately file the ITR before the deadline of 15 September 2025.
Summing Up
This ITR filing season is a critical time for taxpayers to be vigilant. With SFT reporting, the department already possesses comprehensive data on major financial transactions of taxpayers. Thus, any mismatch or reporting errors can lead not only to substantial fines but also to increased scrutiny from the department.
