What are Specified Financial Transactions under Income Tax Act, 1961?

Authored by Kritika Krishnamurthy, Partner and Kavya Awasthi, Associate

1. BACKGROUND

1.1. The concept of Specified Financial Transaction (“SFT”) was created to keep a record of high value transactions undertaken by the taxpayers.

1.2. Section 285BA of the Income Tax Act, 1961 (“Act”), states that the specified person has an obligation to furnish a statement, reporting such SFTs in Form 61A, within 31st May of the subsequent year.

2. TRANSACTIONS THAT ARE SFT

2.1. As per Rule 114E of the Income Tax Rules, 1962, following transactions by the specified person, is considered as an SFT.

Sl. No.	Nature & Value of Transaction	Reporting Person
1	(a) Payment made in cash for purchase of bank drafts or pay orders or banker's cheque of an amount aggregating to Rs. 10 lakh or more in a financial year. (b) Payments made in cash aggregating to Rs. 10 lakh or more during the financial year for purchase of pre-paid instruments issued by Reserve Bank of India. (c) Cash deposits or cash withdrawals (including through bearer's cheque) aggregating to Rs. 50 lakh or more in a financial year, in or from one or more current account of a person.	A Banking company or a co-operative bank.
2	Cash deposits aggregating to Rs. 10 lakh or more in a financial year, in one or more accounts (other than a current account and time deposit) of a person.	A banking company or co-operative bank Post Master General
3	One or more-time deposits (other than a time deposit made through renewal of another time deposit) of a person aggregating to Rs. 10 lakh or more in a financial year of a person.	A banking company or co-operative bank Post Master General Nidhi Company Non-banking financial company
4	​Payments made by any person of an amount aggregating to: Rs. 1 lakh or more in cash; or Rs. 10 lakh or more by any other mode, against bills raised in respect of one or more credit cards issued to that person, in a financial year.	A banking company or a co-operative bank or any other company or institution issuing credit card.
5	Receipt from any person of an amount aggregating to Rs. 10 lakh or more in a financial year 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).	A company or institution issuing bonds or debentures.
6	Receipt from any person of an amount aggregating to Rs. 10 lakh or more in a financial year for acquiring shares (including share application money) issued by the company.	A company issuing shares.
7	Buy back of shares from any person (other than the shares bought in the open market) for an amount or value aggregating to Rs. 10 lakh or more in a financial year.	A company listed on a recognised stock exchange purchasing its own securities under section 68 of the Companies Act, 2013.
8	Receipt from any person of an amount aggregating to Rs. 10 lakh or more in a financial year 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).	A trustee of a Mutual Fund or such other person managing the affairs of the Mutual Fund.
9	Receipt from any person for sale of foreign currency including any credit of such currency to foreign exchange card or expense in such currency through a debit or credit card or through issue of traveller’s cheque or draft or any other instrument of an amount aggregating to Rs. 10 lakh or more during a financial year.	Authorised person under Foreign Exchange Management Act, 1999.
10	Purchase or sale by any person of immovable property for an amount of Rs. 10 lakh or more or valued by the stamp valuation authority referred to in section 50C of the Act at Rs. 30 lakh or more.	Inspector General or Registrar or Sub-Registrar appointed under the Registration Act, 1908.
11	Receipt of cash payment exceeding INR 2 lakhs 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.
12	Cash deposits during the period 9thNovember, 2016 to 30thDecember, 2016 aggregating to: Rs. 12,50,000 or more, in one or more current account of a person; or Rs. 2,50,000 or more, in one or more accounts (other than a current account) of a person	A banking company or co-operative bank within the ambit of Banking Regulation Act, 1949 applies. Post Master General as defined in Indian Post Office Act, 1898
13	Cash deposits during the period 1st of April, 2016 to 9th November, 2016 in respect of accounts that are reportable under SI.No.12 because cash deposited in this account between 9th November, 2016 to 30th December, 2016 aggregating to: Rs. 12,50,000 or more, in one or more current account of a person; or Rs. 2,50,000 or more, in one or more accounts (other than a current account) of a person.	A banking company or a co-operative bank to which the Banking Regulation Act, 1949 applies Post Master General as defined in the Indian Post Office Act, 1898

2.2. Central Board of Direct Taxes (“CBDT”), vide Income- Tax (4th Amendment) Rules, 2021 (notification dated March 12, 2021), has extended the scope of SFTs. Now, following SFTs are also required to be reported for the purpose of pre- filling the return of income:

Sl.No.	Nature & Value of Transaction	Reporting Person
1	Capital gains on transfer of listed securities or units of Mutual Funds.	Recognised Stock Exchange; Depository as defined in section 2(1)(e) of Depositories Act, 1996; Recognised Clearing Corporation; and Registrar to an issue and share transfer agent registered under section 12(1) of the SEBI Act, 1992.
2	Dividend income	A Company
3	Interest income	Banking company or a Co-op. Bank to which the Banking Regulation Act, 1949 (10 of 1949) applies (including any bank or banking institution referred to in section 51 of that Act); Post Master General as referred to in the Indian Post Office Act, 1898; and Non-banking financial company which holds a certificate of registration under section 45-IA of the Reserve Bank of India Act, 1934 (2 of 1934), to hold or accept deposit from public.