The Finance Ministry announced in Union Budget 2021-22 that now the pre-filled Income Tax Return Forms will have more details like detail of dividend and interest income.
Since the announcement, every taxpayer has a question in mind, that how Income Tax Department will collect such information regarding their dividend, interest and other related income. CBDT answered this by issuing Notification No. 16/2021 on 12th March 2021.
In this notification, CBDT has notified that for pre-filling the return of income, specified persons (Like banks) shall furnish information regarding capital gain transaction, dividend income and interest income of assesses, before the Income tax department in a specified manner.
For the same, the CBDT has made amendment in Rule 114E by amending sub-rule 2A and by introducing sub-rule 5A of Income tax Rules, 1962
However, similar provisions already existed under the IT Act, then what was the need of this new amendment? In this blog we will address all these questions along with other concepts related to Statement of Financial Transactions.
Introduction to SFT
The GOI introduced the concept of ‘Annual Information Report’ (AIR) by the Finance Act, 2003 and inserted Section 285BA in the Income Tax Act, 1961 related thereto. Later on the government in Finance Act, 2013, renamed the AIR as SFT i.e. Statement of Financial Transactions under Section 285BA of the IT Act, 1961. This concept was introduced to keep a watch on the high value transactions in order to curb black money, corruption and tax evasion.
Section 285BA of the IT Act read with rule114E puts an obligation on specified persons to submit a report of specified financial transactions registered and recorded in a financial year to the Income Tax Authority on or before the specified time.
This statement is required to be furnished in Form 61A on or before 31st May, immediately following the financial year in which such transactions were registered/recorded.
The Specified reporting entities includes Banks, Companies which are issuing shares, bonds or debentures, or Credit Card companies etc. As per the Act they are required to report about the specified transactions over and above the specified threshold limits such as cash deposits in banks, cash investments in companies or credit card bill payment in cash exceeding certain specified amount etc. to the Income Tax Department.
How the IT Authorities will use such Information?
With latest Notification No. 16/2021 dated 12th March 2021, the government of India has widened the scope of SFT by including the details of certain income in pre-filled ITRs so as introduced in Union Budget 2021-22.
Moreover, the CBDT through this notification has also issued detailed guidelines for the preparation and submission of SFT by specified institutions. Thus, the sub-rule 5A of Rule 114E mandates the companies and banks to submit details of dividend income and interest income in the prescribed form at prescribed frequency and in a prescribed manner to the IT Authorities.
Thereafter, this information will be used by the IT Department for providing new pre-filled ITR Forms and to make the entire ITR filing process easy and convenient for all the taxpayers.
What information is required to be reported as per Rule 114E (5A)?
Interest Income – if exceeding Rs. 5,000/-
Banks are required to furnish a report about the details of all those account holders whose total interest income earned on across all saving account, fixed deposits or recurring account exceeds Rs. 5,000/- in a financial year. This report is a part of SFT. Moreover, the bank is required to submit separate report on each type of account of all the accountholders.
Dividend Income – No minimum limit
Likewise, the companies are also required to furnish or submit a report to the IT Authorities about the details of dividend paid to all the shareholders in a financial year irrespective of the amount of dividend. Meaning, there is no prescribed minimum limit. The statement of Financial Transactions must be accurately signed, verified and submitted by the designated persons of the reporting entities before the specified authorities.
Capital gains earned on transfer of listed securities or units of Mutual Funds etc.
Recognized stock exchange, Depository, Recognized Clearing Corporation etc. are required to furnish a report about the details of capital gain earn by assesses in a financial year, in a specified manner.
Implications of not fulfilling obligation by specified persons under Section 285BAof the IT Act
The Income Tax Act, 1961 has prescribed penalties for violating the obligation imposed by Section 285A of the Act.
Section 271FA – failure to furnish SFT
According to this section, if an entity that is required to furnish Statement of Financial Transaction under Section 285BA fails to provide the SFT within the prescribed time-period then such entity shall be liable to pay penalty of Rs. 500/- every day during which such failure continues.
Where the Income Tax Authority issued the notice on such defaulting entity and the entity still defaults in furnishing the SFT within the time stipulated in such notice, then the entity shall be liable to pay penalty of Rs. 1,000/- for every day during which such failure continues from the day next to the expiry of notice period.
2.Section 271FAA – furnishing inaccurate SFT
According to this provision, if an entity that is required to furnish Statement of Financial Transaction under Section 285BA provides inaccurate information in the SFT and fails to inform and furnish correct information to the authority then such entity shall be liable to pay penalty of Rs. 50,000/-.
Consequently, the specified entities are required to furnish more details like dividend income and interest income in the Statement of Financial Transactions in accordance with the guidelines issued by the CBDT. Thereafter, the Income Tax Authorities will use such information for pre-filled ITRs. It will make the ITR filing more easy and convenient for ITR filers, as maximum income detail would be pre-filled in the ITR.
However, one should always file his ITR under the guidance of experts, in order to minimize the scope of mistakes and future penalties. If you are looking for Professionals’ help for filing ITR forms accurately then Manthan Experts is the right place for you.