OVERVIEW ON STATEMENT OF FINANCIAL TRANSACTIONS (SFT)

1 (2)

Any person who is liable for audit under section 44AB of the Act and Receipt of cash payment exceeding two lakh rupees for sale, by any person, of goods or services of any nature – Make Sure your Statement of Financial Transactions (SFT) in Form 61A  for financial year 2016-2017 is to be filled by you till the May 31st, 2017

Taxpayers who are liable for audit under section 44AB is a new inclusion who are liable for reporting the transactions from the financial year 2016-17 onwards. This will create huge database for the government to do an effective cleaning up of the parallel economy.

The CBDT in its press release dated 22.12.2016 has clarified that besides its Notification No.91/2016 dated 06.10.2016 that the aggregate of cash receipt during the year is not the benchmark for reporting. In other words, the requirement under SFT reporting is receipt of cash payment exceeding Rs.2 lakhs or more for sale of goods or services per transaction.

Every person, listed in section 285BA(1) is under an obligation to furnish a periodic statement of specified financial transactions (ISFT) as prescribed under the Income Tax Rules. Rule 114E of the Income Tax Rules, as amended w.e.f. 01.04.16, specifies the nature and value of reportable transactions, periodicity of furnishing of SFT, format of SFT, etc.

In order to reduce generation and circulation of domestic black money the Finance Act 2017 has imposed a prohibition on receipt of cash payments of rupees Two lakhs and above under new section 269ST, applicable w.e.f. 01.04.2017. Any contravention of the aforesaid provision would invite penalty on the recipient under Section 271DA which shall be equivalent to the amount of cash received. However, there would be no penalty if there is good and sufficient reason for contravention of such provision.

To keep a watch on high value transactions undertaken by the taxpayer, the Income-Tax law has framed the new concept of furnishing of Statement of Financial Transactions (SFT) in Form No 61A. It has replaced earlier annual information return reporting.  All business assesses liable under tax audit, various financial institutions and professionals will have to report a slew of high-value transactions such as cash deposit, credit card payments, share sale, property deals, debentures and mutual fund units among others. All these transactions are to be reported in a separate statement which will be Statement of Financial transactions (SFT).

As far as sale of goods or services are concerned, it would be interesting to analyze as to how these two machineries are going to supplement each other.

Rule 114E: Furnishing of statement of financial transaction: [w.e.f . 01.04.16]

  1. Rule 114E. (1)The statement of financial transaction required to be furnished under sub-section (1) of section 285BA of the Act shall be furnished in respect of a financial year in Form No. 61A and shall be verified in the manner indicated therein.

(2) The statement referred to above shall be furnished by every person mentioned in column (3) of the Table below in respect of all the transactions of the nature and value specified in the corresponding entry in column (2) of the said Table in accordance with the provisions of sub-rule (3), which are registered or recorded by him on or after the 1st day of April, 2016, namely:—

No.* Nature and value of transaction Reporting person
(1) (2) (3)
10 Purchase or sale by any person of immovable property for an amount of thirty lakh rupees or more or valued by the stamp valuation authority referred to in section 50C of the Act at thirty lakh rupees or more. Inspector-General appointed under section 3 of the Registration Act, 1908 or Registrar or Sub-Registrar appointed under section 6 of that Act.
11. Receipt of cash payment exceeding two lakh rupees for sale, by any person, of goods or services of any nature (other than those specified at Sl. Nos. 1 to 10 of this rule, if any.) Any person who is liable for audit under section 44AB of the Act.

* Only items relevant to the discussion of this article are listed.

(3) The reporting person mentioned in column (3) of the Table under sub-rule (2) (other than the person at Sl. No. 10 and Sl. No. 11 w.e.f. 06.10.16)** shall, while aggregating the amounts for determining the threshold amount for reporting in respect of any person as specified in column (2) of the said Table,—

(a) take into account all the accounts of the same nature as specified in column (2) of the said Table maintained in respect of that person during the financial year;
(b) aggregate all the transactions of the same nature as specified in column (2) of the said Table recorded in respect of that person during the financial year;
(c) attribute the entire value of the transaction or the aggregated value of all the transactions to all the persons, in a case where the account is maintained or transaction is recorded in the name of more than one person;
(d) apply the threshold limit separately to deposits and withdrawals in respect of transaction specified in item (c) under column (2), against Sl. No. 1 of the said Table.

(5) The statement of financial transactions referred to in sub-rule (1) in Form 61A shall be furnished on or before the 31st May, immediately following the financial year in which the transaction is registered or recorded.

** As per Notification No. 91/2016

(ALERT: As per sec. 285BA, r.w.r. 114E(6)(a) every reporting person mentioned in column (3) of the table under sub-rule (2) of rule 114E should obtain a registration number from IT Department for the purpose of filing Statement of Financial Transactions [SFT] in Form No. 61A.

CBDT vide Notification No. 13 of 2016, dt. 30.12.16 explained the procedure for Registration and generation of ITD registered Entity Identification Number [ITDREIN])

Issues:

(i) Reporting in Form 61A [in case of transaction No.11 mentioned in Rule 114E(2) above] applies only to 44AB audit cases.
(ii) The norms of aggregation contained in sub-rule 3 of Rule 114E have been amended vide CBDT’s Notification No. 91/2016, dated 6th October, 2016; clearly indicating that the said transactions do not require aggregation and the reporting requirement under Statement of Financial Transactions [SFT] for this purpose is on receipt of cash payment exceeding Rupees Two Lakh for sale of goods or services PER TRANSACTION. [CBDT press release dated 22.12.16]

Section 269ST inserted by the F.A. 2017: 

  1. 269ST.No person shall receive an amount of two lakh rupees or more—
(a) in aggregate from a person in a day; or
(b) in respect of a single transaction; or
(c) in respect of transactions relating to one event or occasion from a person, otherwise than by an account-payee cheque or an account-payee bank draft or use of electronic clearing system through a bank account:

Comparison:

On one hand any person who is liable for audit under section 44AB of the Act is liable to report, on yearly basis, all his transactions involving receipt of cash payment exceeding two lakh rupees for sale of goods or services of any nature in Form 61A electronically.

On the other hand, as per newly introduced section 269ST, there is equivalent penalty on receipt of cash payments of rupees Two lakhs or above, in the circumstances as specified in clause (a) to (c) of S. 269ST(1)!!

Thus, these two machineries of the Act are clearly supporting each other for effective implementation of the legislative intent to curb black money through restrictions on cash transactions above specified limits. This is further explained below by way of comparative chart in the context of transactions of sale of goods or services.

5.1 Applicability of Rule 114E and S. 269ST in sales transactions

Sr. No. Nature of Transaction S. 269 ST w.e.f. 01.04.2017 applicable Yearly Reporting in Form 61A w.e.f. (01.04.16)
(1) (2) (3) (4)
1 Single Bill below Rs. 2,00,000/-.
1.1 – Full Recovery in cash NO NO
1.2 – Part recovery in cash NO NO
1.3 – Full recovery by Cheque NO NO
2 Single Bill exceeding Rs. 2,00,000/-.
2.1 – Full Recovery in cash on single occasion YES YES
2.2 – Part recovery in cash below Rs. 2 Lacs NO NO
2.3  – Part recovery in cash above Rs. 2 Lacs on single occasion YES YES
2.4 – Part recovery in cash above Rs. 2 Lacs on multiple occasions but not a single receipt exceeds Rs. 2 Lacs YES NO
2.5 – Full recovery by Cheque NO NO
3 Multiple Bills issued during year to same person and the aggregate bill amount exceeds Rs. 2,00,000/-. (However, not even a single bill exceeds Rs. 2 Lacs)
3.1 – Full Recovery in cash on single occasion YES YES
3.2 – Part recovery in cash above Rs. 2 Lacs on multiple occasions (on different days) but not a single receipt exceeds Rs. 2 Lacs NO NO
3.3 – Part recovery in cash above Rs. 2 Lacs on multiple occasions (IN SINGLE DAY) but not a single receipt exceeds Rs. 2 Lacs YES NO*
3.4  – Part recovery in cash above Rs. 2 Lacs on single occasion YES YES
3.5 – Full recovery by Cheque NO NO

 Assumptions:

Multiple bills issued to a person do NOT relate to one event or occasion
‘On single occasion’ means, at a moment in a day

*Refer to CBDT’s press release, dt. 22.12.16 as discussed above

 NOTE: In case of –

multiple Bills issued during year to same person and the aggregate bill amount exceeds Rs. 2,00,000/-; and
One or more bills exceed Rs. 2 Lakh,

assessee has to establish one to one correlation in books of account between bills issued and cash receipts from time-to-time, so as to check applicability of section 269ST.

Therefore, dealers should specifically mention on every cash receipt the sale Bill No. and date against which the cash is accepted.

Key points for understanding the Statement of Financial reporting

  • Requirement of filing Annual Information Return (AIR) is now being replaced by Statement of Financial Transactions (SFT).
  • SFTs have to be filed in separate form and not along with Income Tax (IT) returns.
  • The form for SFT reporting is Form 61A. It consists of 4 parts.
  • The due date for filing first SFT for financial year 2016-2017 is May 31, 2017.
  • It is applicable for all the business taxpayers liable for tax audit, professionals, and financial institutions.
  • Entities that will report are banks, professionals, fund houses, forex dealers, post office, nidhis, non-banking finance companies, property registrars, companies issuing bonds and debentures, and listed companies buying back shares from specific persons.
  • Changes have created new classes of first time filers who have to file SFT of specified transactions for FY 2016-17.
  • Salaried individuals are not required to file for statement of financial transactions (SFT)
  • The nature of transactions includes cash payment for purchase of demand drafts or pay orders of Rs 10 lakh or more in a year; cash payment of Rs 10 lakh or more for purchase of prepaid RBI instruments, cash deposit or withdrawal of Rs 50 lakh or more from current account; one-time deposit of Rs 10 lakh or more with banks, nidhis, NBFCs and post offices; payment of Rs 1 lakh or more in cash and Rs 10 lakh or more by other mode against credit card bill issued to a person during the year; and property registrars for deals worth Rs 30 lakh or more.
  • While reporting the transaction in Form 61 ( Statement of Financial transaction) a business taxpayer will have to take into account all the accounts of the same nature maintained in respect of a person during a financial year; also, while attributing the entire value of the transactions to all the persons in cases where the account is maintained or transactions recorded in the name of more than one person.
  • Penalty on delay is Rs. 100 per day, if notice not received, else upto Rs 500/ day
  • Filing of inaccurate information will attract penalty of Rs 50,000.

Conclusion:

There is a notable difference between the two provisions as discussed above. Section 269ST applies to transactions of receipt of money of Two Lakh rupees or more, whereas reporting of SFT, as implemented by Rule 114E, applies to receipt of cash payment exceeding Two Lakh rupees. Thus, the sales transactions involving receipt of cash of exactly Rs. Two lakhs will go unreported in Form 61A under Rule 114E, which are, in fact, liable to be booked under S. 269ST, read with section 271DA of the Act.

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