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Section 61A of Income Tax Act – A Comprehensive Guide

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Income tax is an essential component of any economy as it helps the government to generate revenue for the development of the country. As a taxpayer, it is essential to have a clear understanding of the various provisions of the Income Tax Act to ensure compliance and avoid any legal hassles. One such provision is Section 61A of the Income Tax Act, which deals with the provision of mandatory furnishing of the statement of financial transactions (SFT). In this blog, we will discuss Section 61A of the Income Tax Act in detail.

Introduction to Section 61A of Income Tax Act

Section 61A was introduced in the Income Tax Act in 2016, with the aim of curbing black money and promoting transparency in financial transactions. As per this section, certain entities are required to furnish an SFT to the Income Tax Department for specified transactions during the financial year.

Entities Covered under Section 61A of Income Tax Act

The following entities are covered under Section 61A of the Income Tax Act:

  1. Reporting Financial Institutions: Any financial institution, such as a bank, mutual fund, post office, or cooperative bank, that has been notified by the Central Board of Direct Taxes (CBDT) is required to furnish an SFT.
  2. Specified Persons: Any person who has been notified by the CBDT is required to furnish an SFT. This includes a person who has undertaken any of the following transactions during the financial year:

a. Purchase or sale of immovable property valued at Rs. 30 lakhs or more.

b. Cash deposits or withdrawals exceeding Rs. 10 lakhs in a financial year.

c. Credit card payments exceeding Rs. 1 lakh in a financial year.

d. Investment in bonds or debentures exceeding Rs. 10 lakhs in a financial year.

e. Purchase of shares or mutual fund units exceeding Rs. 10 lakhs in a financial year.

f. Purchase of foreign currency exceeding Rs. 10 lakhs in a financial year.

g. Purchase or sale of goods or services exceeding Rs. 50 lakhs in a financial year.

h. Opening a current account with a bank.

i. Any other transaction specified by the CBDT.

Details to be furnished in the Statement of Financial Transactions

The SFT to be furnished under Section 61A of the Income Tax Act should contain the following details:

  1. Name, address, and PAN of the person/entity undertaking the transaction.
  2. Nature and value of the transaction.
  3. Date of the transaction.
  4. Mode of payment.
  5. Other details specified by the CBDT.

Due Date for Furnishing the Statement of Financial Transactions

The due date for furnishing the SFT under Section 61A of the Income Tax Act is 31st May of the financial year following the year in which the transaction was undertaken. For instance, the SFT for transactions undertaken during the financial year 2022-23 should be furnished by 31st May 2024.

Penalties for Non-Furnishing of Statement of Financial Transactions

If a person or entity covered under Section 61A of the Income Tax Act fails to furnish the SFT within the due date, they may be liable to pay a penalty of Rs. 100 per day of default, subject to a maximum of Rs. 5 lakhs. In case of willful failure to furnish the SFT, a penalty of Rs. 50,000 may be imposed.

Conclusion

In conclusion, Section 61A of the Income Tax Act is an important provision that requires certain entities to furnish a statement of financial transactions to the Income Tax Department for specified transactions during the financial year. The provision aims to promote transparency in financial transactions and curb black money. It is crucial for entities covered under this section to comply with the requirements and furnish the SFT within the due date to avoid any legal penalties. As taxpayers, it is important to have a clear understanding of this provision to ensure compliance and contribute to the development of the country through the payment of taxes.

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Frequently Asked Questions (FAQs)

Q1. What is Section 61A of the Income Tax Act?
A1. Section 61A of the Income Tax Act is a provision that requires certain entities to furnish a statement of financial transactions (SFT) to the Income Tax Department for specified transactions during the financial year.

Q2. Who is required to furnish an SFT under Section 61A of the Income Tax Act?
A2. Reporting Financial Institutions and Specified Persons, as notified by the Central Board of Direct Taxes (CBDT), are required to furnish an SFT.

Q3. What are the specified transactions under Section 61A of the Income Tax Act?
A3. The specified transactions under Section 61A of the Income Tax Act include purchase or sale of immovable property valued at Rs. 30 lakhs or more, cash deposits or withdrawals exceeding Rs. 10 lakhs in a financial year, credit card payments exceeding Rs. 1 lakh in a financial year, investment in bonds or debentures exceeding Rs. 10 lakhs in a financial year, purchase of shares or mutual fund units exceeding Rs. 10 lakhs in a financial year, purchase of foreign currency exceeding Rs. 10 lakhs in a financial year, purchase or sale of goods or services exceeding Rs. 50 lakhs in a financial year, opening a current account with a bank, and any other transaction specified by the CBDT.

Q4. What details should be furnished in the Statement of Financial Transactions under Section 61A of the Income Tax Act?
A4. The Statement of Financial Transactions under Section 61A of the Income Tax Act should contain the name, address, and PAN of the person/entity undertaking the transaction, nature and value of the transaction, date of the transaction, mode of payment, and other details specified by the CBDT.

Q5. What is the due date for furnishing the Statement of Financial Transactions under Section 61A of the Income Tax Act?
A5. The due date for furnishing the Statement of Financial Transactions under Section 61A of the Income Tax Act is 31st May of the financial year following the year in which the transaction was undertaken.

Q6. What are the penalties for non-furnishing of the Statement of Financial Transactions under Section 61A of the Income Tax Act?
A6. If a person or entity covered under Section 61A of the Income Tax Act fails to furnish the Statement of Financial Transactions within the due date, they may be liable to pay a penalty of Rs. 100 per day of default, subject to a maximum of Rs. 5 lakhs. In case of willful failure to furnish the SFT, a penalty of Rs. 50,000 may be imposed.

Q7. Is it mandatory to furnish the Statement of Financial Transactions under Section 61A of the Income Tax Act?
A7. Yes, it is mandatory to furnish the Statement of Financial Transactions under Section 61A of the Income Tax Act for the entities and transactions specified by the CBDT. Failure to furnish the SFT may attract penalties.

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