In another attempt to bring high-value cash transactions under the purview of Income Tax in India, Rule 114E of Income Tax Rules 1962 came into being from 1st April, 2016 that in official terms, deals with ‘furnishing statement of financial transactions or SFT’ by the individuals or the tax assessee.
Provisions of Rule 114E of Income Tax Rules 1962 Explained
In case of any cash transactions amounting to Rupees two lakhs and above for selling goods or services, the corresponding reporting authority or the tax assessee has to submit the details of the transaction in the form of the full statement of financial transactions under Rule 114E. This is because he is legally responsible for audit under section 44AB of the Income Tax Act, 1961 and therefore, it is mandatory to provide a statement of the financial transactions at serial no.11 of Rule 114E (2). Although the same were ruled out vide CBDT’s notification no.91/2016 dated 6th October, 2016 stating an obvious irrelevance of reporting such transactions, yet, this will be applicable only for cash transactions exceeding two lakhs per transaction only.
More about Rule 114E of Income Tax Rules, 1962
There were several questions raised regarding the viability or logic behind reporting such transactions under Rule 114E (2) after the announcement of the same by official spokesperson of CBDT (Central Board of Direct Taxes), Smt. Meenakshi J. Goswami, Commissioner of Income Tax (Media and technical Policy). The Rule 114E came as the 30th Amendment of Income Tax Act, 1961 (43 of 1961) that will come into effect from the official date of publication of the same in the Official Gazette. The main points regarding declaration of the statement of financial transactions based on nature and values of transactions along with the corresponding class of person or the reporting person under Rule 114E of Income Tax Act, 1962 are:
- In case of payments made in cash for purchase of bank drafts, pay orders, etc. , cash deposits and cash withdrawals amounting to almost Rupees ten lakhs per year, statements need to be furnished by the concerned reporting authority, which is here the banking company or a co-operative bank that is applicable under the Banking Regulation Act, 1949 referred to in Section 51 of the Act.
- In case of cash deposits, cash withdrawals, payments, one or more time deposits aggregating to more than Rupees ten lakhs per year, the reporting authority, which is the banking company, co-operative bank or postmaster general here has to report the same to the Income Tax Department of India.
- In case of receipts or buy back of shares totaling to Rupees ten lakhs, the concerned company or the authorized person will be the reporting authority to furnish the statement of the financial transactions under Rule 114E of Income Tax Rules, 1961.
Publication of the principal rules in detail was done on 7th November, 2016 vide notification S.O.969 (E) dated 26th March, 1962 and later amended vide notification S.O.3399 (E) that will require furnishing the details of the financial statements in respect of the financial transactions on or before 31st January 2017.
Also read- Obligation to file Annual Information return