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Alerts:

Direct Tax Alert - Scope of Specified Financial Transactions reporting widened

16 March 2021

Section 285BA of the Income-tax Act, 1961 (IT Act) mandates specified person to furnish Statement of Financial Transactions (SFT) in respect of specified transactions. Rule 114E of the Income-tax Rules, 1962 (IT Rules) provides for the class of person (i.e. reporting person) and the nature and value of transaction for which reporting is to be done. As per Rule 114E of the IT Rules, the SFT is to be furnished in Form 61A. Currently, transactions pertaining to cash deposit/ withdrawal, time deposits, transfer of shares, transfer of units of mutual funds, foreign currency and immovable property, which exceed the prescribed thresholds, are required to be reported in terms of Rule 114E of the IT Rules.

Recently, the Central Board of Direct Taxes (CBDT) has issued a Notification1 to amend Rule 114E of the IT Rules. We, at BDO in India, have analysed and summarised the said notification and provided our comments on its impact hereunder:

Why this amendment?

In order to have capital gains on transfer of listed securities or units of Mutual Funds; dividend income; and interest income pre-filled in the tax return, Rule 114E of the IT Rules has been amended.

Which type of transaction and who are the reporting persons?

Sub-Rule (5A) is inserted in Rule 114E of the IT Rules to enable reporting of capital gains on transfer of listed securities or units of Mutual Funds; dividend income; and interest income. The type of transaction and corresponding reporting person is tabulated hereunder:

Sr. No.

Nature of transaction

Specified reporting person (i.e. Reporting Person)

1

Capital gains on transfer of listed securities or units of Mutual Funds

i. Recognised Stoch Exchange

ii. Depository as defined in clause (e) of sub-section (1) of section 2 of the Depositories Act, 1996 (22 of 1996)

iii. Recognised Clearing Corporation

iv. Registrar to an issue and share transfer agent registered under sub-section(1)  of section 12 of the Securities and Exchange Board of India Act, 1992 (15 of 1992).

2

Dividend income

A company

3

Interest income

i. A banking company or a co-operative 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)

ii. Post Master General as referred to in clause (j) of section 2 of the Indian Post Office Act, 1898 (6 of 1898)

iii. Non-banking financial company which holds a certificate of registration under section 45-IA of the Reserve Bank of India Act, 1934, to hold or accept deposit from public

The terms listed securities2; mutual fund3; recognised clearing corporation4; recognised stock exchange5 and securities6 defined.

BDO Comments

During her budget speech for Union Budget 2021, the Hon’ble Finance Minister Smt. Nirmala Sitharaman had announced that filing of tax returns will be further eased. This would be achieved by making details pertaining to capital gains from listed securities, dividend income, and interest from banks, post office, etc. pre-filled. In line with this announcement, this Notification has been issued by the CBDT. While the Rule has been amended, corresponding form (i.e. Form 61A) is yet to be amended. The deadline for filing Form 61A being 31 May of the succeeding Fiscal Year (FY) i.e., 31 May 2021 for FY 2020-21. Once the revised Form 61A is notified, the taxpayers would know the information that needs to be submitted. With only 2.5 months to go for filing of Form 61A and no sight of revised Form 61A, it could be a herculean task for the taxpayers to collate the requisite information and ensure its timely compliance.


1Notification No 16/2021 [F.No.370142/03/2021-TPL] dated 12 March 2021

2“listed securities” means the securities which are listed on any recognised stock exchange in India.

3"Mutual Fund" means a Mutual Fund as referred to in section 10(23D) of the IT Act.

4"recognised clearing corporation" shall have the same meaning as assigned to it in Regulation 2(1)(o) of the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2012 made under the Securities Contracts (Regulation) Act, 1956 (42 of 1956) and the Securities and Exchange Board of India Act, 1992 (15 of 1992)

5“recognised stock exchange” shall have the same meaning as assigned to it in clause (f) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956);

6"securities" shall have the same meaning as assigned to it in clause (h) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956).