Receiving notices from tax authorities for high-value transactions has become increasingly common in recent times. The adoption of digital technologies has facilitated the efficient tracking of financial transactions, allowing tax authorities to analyse large datasets and identify discrepancies or potential non-compliance more effectively. As tax administrations strive to enhance transparency and curb tax evasion, they are paying closer attention to large financial activities of individuals and entities.

In order to monitor significant transactions conducted by taxpayers, the Income-tax Law has introduced the concept of a statement of financial transaction (SFT) or reportable account.  The SFT enables tax authorities to gather details about specific prescribed high-value transactions carried out by the person throughout the year.  Based on information from prescribed entities in the SFT the Income-tax Department monitors a person’s specific financial transactions throughout the year.

Under Section 285BA of the Income Tax Act, 1961, Specified entities must submit a SFT or reportable account, they have maintained during the financial year to the income-tax authority. The electronic submission of the statement of financial transaction, authenticated with a digital signature, is to be done using Form No. 61A and sent to either the Director of Income-tax (Intelligence and Criminal Investigation) or the Joint Director of Income-tax (Intelligence and Criminal Investigation).

Following are the nature of transaction which are reportable and the person liable to report those transactions:

1. A banking company or cooperative bank needs to furnish Cash payment made for purchase of bank drafts or pay orders, banker’s cheque, prepaid instruments issued by RBI of amount Rs.10 lakh or more. Cash deposits or withdrawals including through bearer’s cheque aggregating Rs.50 Lakh or more in a financial year.
2. A Banking Company or Cooperative Bank or Postmaster General need to furnish Deposits of cash totalling Rs. 10 lakh or above within a fiscal year, spread across one or multiple accounts belonging to an individual, excluding current accounts and time deposits.
3. A banking company or a cooperative bank, PostMaster General, Nidhi Company, or a Non-banking financial company need to furnish One or more time deposits, excluding those created through the renewal of another time deposit, totaling Rs. 10 lakh or more within a person’s financial year.
4. A banking company or a cooperative bank or any other company or institution issuing credit card need to furnish details of Payments exceeding—(i) Rs. 1 lakh in cash, or (ii) Rs. 10 lakh through any other means, made by a person against bills generated for one or more credit cards issued to them within a financial year.
5. A company or institution issuing bonds , debentures, shares, listed company purchasing its own shares, trustee of a mutual fund need to furnish the amount received by any person towards new issue of bonds, debentures, share, buyback of shares,  acquiring units of mutual fund amount equal to or more than Rs.10 lakh.
6. Authorised persons under FEMA 1999 need to furnish details on receipts of foreign currency, Credit or debit for foreign exchange card or through travellers cheque or draft or any other instrument aggregating to Rs.10 lakh or more.
7. Inspector-General or Registrar or Sub-Registrar appointed under the Registration Act, 1908 need to report any transaction involving the acquisition or disposal of immovable property by any individual, amounting to Rs. 10 lakh or more, or appraised at Rs. 30 lakh or more by the stamp valuation authority mentioned in section 50C of the Act.
8. Any individual subject to audit obligations as per section 44AB of the Act need to report Receipt of cash payment surpassing Rs. 2 lakh for the sale of goods or services by any person.

Consequences of failing to provide a statement of financial transaction or reportable account:

• Failure to submit a statement of financial transaction or reportable account will result in penalties under section 271FA, with a fine of Rs. 500 per day of non-compliance.
• Section 285BA(5) grants the tax authorities the power to send a notice to a person, instructing them to submit the statement within a time frame not exceeding 30 days from the date of receiving the notice.
• A penalty of Rs. 1,000 per day will be imposed starting from the day immediately following the expiration of the specified period mentioned in the notice if the person fails to submit the SFT.

Inaccurate or defective SFT:

If any inaccurate information is reported in the statement, it can be informed to prescribed income tax authority and can be rectified within a period of 10 days. If the defect is detected by the income tax authority, he can inform and give opportunity to the person to correct it within a period of 30 days from the intimation date. In the event that the person neglects to correct the statement, it will be presumed that the person provided inaccurate information in the statement.

Consequences of filing inaccurate or defective statement

• Such a person is required to pay a penalty of Rs. 50,000.
• Further from the assessment year 2023-24, A financial institution reporting inaccuracies in the SFT, resulting from false or inaccurate information provided by the holder of a reportable account, will incur a penalty of Rs. 5,000. Further financial institutions can recover it from assessee.

In conclusion, the issuance of notices for high-value transactions reflects the government’s commitment to ensuring tax compliance and preventing tax evasion. Timely and transparent responses to the notices are crucial. The legal framework surrounding taxation undergoes periodic changes. Assessees receiving notices should be aware of these changes and adapt their financial practices accordingly to remain in compliance with the current tax laws.  Seeking professional advice to navigate the complexities of tax regulations effectively is a good option. BCL India has a team of experts who help ensure accurate and comprehensive responses to the tax authorities.