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Demystifying Income Tax Reporting: Understanding Form 61A and Specified Financial Transactions

In the realm of finance, high-value transactions play a pivotal role, representing significant financial activities that exceed predefined thresholds. These transactions are closely monitored by regulatory authorities to combat money laundering and uphold the integrity of the financial system. For businesses and individuals alike, compliance with high-value transaction regulations is paramount. To this end, the submission of responses in compliance portals for high-value transactions is mandated, serving as a cornerstone of regulatory adherence.

The Income Tax Ac, 1961 (hereinafter referred to as ‘Act/Income Tax Act’) has implemented a rigorous framework to monitor high-value transactions undertaken by taxpayers. This framework includes the submission of a Statement of Financial Transactions (SFT), previously known as the Annual Information Return (AIR). Under Section 285BA of the Act, specified reporting entities are required to furnish this statement in Form 61A, as stipulated by Rule 114E of the Income Tax Rules, 1962 (hereinafter referred to as ‘Rules’)

What is Form 61A?

Form 61A of Income Tax is a statement used to report specified financial transactions to the Income Tax Department. These transactions are essential for the tax authorities to track high-value activities and compare them with the reported income in tax returns. The aim is to detect discrepancies and prevent tax evasion. The form has been crucial since the 2019 Budget, which expanded the scope of Section 285BA to include more detailed reporting, aiding in the pre-filling of income tax returns.

How can one identify a Specified Financial Transaction?

The specified financial transactions that need to be reported in Form 61A include:

  • Sale, purchase, or exchange of goods, rights, property, or interest in property.
  • Works contracts.
  • Provision of services.
  • Investments made or expenses incurred.
  • Accepting any deposits or taking loans.

The Central Board of Direct Taxes (CBDT) can prescribe different values for these transactions depending on their nature and the persons involved.

Entities Required to File Form 61A

The following entities must file Form 61A if they engage in specified transactions:

  • Banking companies and cooperative banks.
  • Non-banking financial companies (NBFCs).
  • Institutions issuing credit cards.
  • Entities covered under audit under Section 44AB of the Income Tax Act.
  • Post offices.
  • Nidhi companies as referred to in Section 406 of the Companies Act, 2013.
  • Companies issuing bonds, debentures, or shares.
  • Mutual fund institutions and trustees.
  • Authorized dealers, offshore banking units, money changers, or other persons defined under Foreign Exchange and Management Act, 1999
  • Inspectors general or sub-registrars appointed under the Registration Act, 1908.

Transactions to be Reported in Form 61A

Various types of transactions need to be reported, each with specific thresholds:

EntityTransaction TypeThreshold Amount
Banking Companies and Cooperative BanksCash payments for purchase of pay orders, demand drafts, or prepaid RBI instruments₹10 lakh or more annually
Banking Companies and Cooperative BanksDeposits or withdrawals from current accounts₹50 lakh or more annually
Banking Companies, Cooperative Banks, and Post OfficesDeposits in accounts other than current or Time Deposits₹10 lakh or more annually
Banking Company, Cooperative Bank, Post Master General, NidhiCash payments or other modes of payment against credit card bills₹1 lakh (cash) or ₹10 lakh (other modes) annually
Companies issuing debentures or bondsReceipts for acquiring debentures or bonds₹10 lakh or more annually
Companies issuing sharesReceipts for acquiring shares, including share application money₹10 lakh or more annually
Listed companiesShare buybacks₹10 lakh or more annually
Trustees of Mutual FundsReceipts for acquiring mutual fund units₹10 lakh or more annually
Dealers of Foreign ExchangeReceipts for the sale of foreign currency or expenses in foreign currency₹10 lakh or more annually
Inspector-General/Sub-RegistrarPurchase or sale of immovable property₹30 lakh or more
Persons liable for audit under Section 44ABCash receipts for sale of goods or services₹2 lakh or more

Nil Statement

Entities falling under the reporting class but not engaging in any specified financial transactions during a financial year often grapple with whether to file a NIL Form 61A. While it’s not mandatory for such entities to file a NIL statement, experts advise doing so to mitigate potential issues.

Filing a NIL Form 61A serves as a proactive measure, signalling compliance with regulatory requirements even in periods of inactivity. This action helps maintain transparency and accountability, demonstrating that the entity has thoroughly reviewed its financial activities and found no reportable transactions.

Due Date and Penalty

The Statement of Financial Transactions must be submitted by May 31st of the year following the financial year in which the transactions occurred. Failure to file within this deadline incurs a penalty under Section 271FA of the Act:

  • ₹500 per day of delay initially.
  • ₹1,000 per day if the delay continues after a notice is issued.

How to File Form 61A Online

To file specified financial transactions, the reporting person or entity must register with the Income Tax Department and generate an ITDREIN (Income Tax Department Reporting Entity Identification Number). Once generated, ITDREIN cannot be deactivated.

Steps to Register for SFT Filing

  1. Login: Visit the e-Filing website and log in using the credentials used for filing the Income Tax Return of the reporting person or entity.
  2. Access Reporting Portal: Click on the “My Account” tab and select the “Reporting Portal” link to access the Reporting Portal for the first-time registration.
  3. Enter Details: Provide the required details, including Form Type, Category, Address of the reporting person or entity, and Details of the Principal Officer.
  4. Generate ITDREIN: After successfully submitting the form, an ITDREIN will be generated. The Principal Officer will receive a confirmation via email and an SMS on the registered mobile number.

Filing Form 61A requires several steps, beginning with downloading necessary tools and utilities:

  • Register on the SFT Reporting Portal: Access the SFT Reporting Portal through the “My Account” menu on the e-Filing website.
  • Prepare the XML File: Generate the XML file in the prescribed schema.
  • Sign and Encrypt the XML: Use the Submission Utility to sign and encrypt the XML.
  • Submit the Statement: Upload the digitally signed and encrypted XML file on the SFT Reporting Portal. Upon successful submission, an acknowledgment number will be sent to the registered email ID.

Different Parts of Form 61A

Form 61A is essential for reporting specified financial transactions (SFT) under the Income Tax Act. It is divided into distinct sections to ensure comprehensive data submission:

Part A: Statement-Level Information

Includes reporting entity details, transaction types, reporting period, and principal officer information setting the context of the report.

Part B: Aggregated Financial Transactions

Contains report numbers, person details, transaction summaries, and detailed transaction information monitoring large volumes of financial activity, identifying patterns and discrepancies.

Part C: Bank Accounts

Includes account information, transaction summaries, and account holder details. This section tracks high-value transactions, focusing on cash flows and account activities.

Part D: Immovable Property Transactions

Reports property transactions containing details of transaction information and data about buyers and sellers thereby monitoring high-value real estate transactions to prevent tax evasion.

Rules of Aggregation

When applying threshold limits, the following aggregation rules apply:

  • All accounts or transactions of the same nature are aggregated.
  • For joint accounts, amounts are added to each account holder’s total.
  • Separate limits apply to deposits and withdrawals.

Exceptions include the purchase and sale of immovable properties and cash payments for goods and services.

Frequently Asked Questions

What is Rule 114E?

Rule 114E of the Income Tax Rules, 1962 specifies the form and manner of filing the statement of specified financial transactions, which is Form 61A, required under Section 285BA(1) of the Income Tax Act.

What is ITDREIN?

ITDREIN (Income Tax Department Reporting Entity Identification Number) is a unique identification number issued by the Income Tax Department upon registration of the reporting entity. It follows the format XXXXXXXXXX.YZNNN, where XXXXXXXXXX is the PAN or TAN, Y is the form code, Z is the reporting entity category code, and NNN is the sequence number.

What is the due date to file Form 61A?

The due date for filing Form 61A is May 31st of the year following the financial year in which the transactions occurred.

What are the penalties for late filing of Form 61A?

The penalties for late filing are:

  • ₹500 per day for initial failure.
  • ₹1,000 per day after the issue of a notice to file.

What happens in case of defective filing of Form 61A?

Filing inaccurate details in Form 61A attracts a penalty of ₹50,000 under Section 271FAA of the Income Tax Act.

How can I respond to an Income Tax notice for high-value transactions?

To respond to an Income Tax notice for high-value transactions, follow these steps:

  1. Log in to the Income Tax e-Filing Portal.
  2. Navigate to ‘Pending Actions’, then ‘Compliance Portal’, and select ‘e-Campaign’.
  3. Choose the relevant e-campaign and category.
  4. Select the transaction you want to report.
  5. Provide the necessary details and submit your response.

What are the penalties for not reporting high-value transactions?

Neglecting to declare the source of funds can lead to significant consequences, including penalties, back taxes, interest charges, audits, and potential legal action. It’s crucial to disclose all income sources to comply with tax regulations and avoid these repercussions.

Conclusion

In conclusion, understanding and adhering to the requirements of Form 61A is crucial for maintaining compliance with income tax regulations. Timely and accurate reporting of specified financial transactions helps avoid penalties and ensures that high-value transactions are transparently documented. Entities must stay informed about the latest regulations and leverage tools like the SFT Reporting Portal to streamline the filing process. By doing so, they can maintain regulatory integrity and contribute to a fair and transparent tax system. InstaFiling is committed to offering proactive, client-centered solutions that help businesses fulfill their tax compliance duties, including those concerning Form 61A. We understand the challenges that businesses face in grasping and meeting tax regulatory obligations while handling their regular operations. Therefore, we provide a wide range of services aimed at simplifying the compliance process and easing the administrative burden for our clients, ensuring smooth adherence to Form 61A and other tax regulations

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