16 Transactions the Tax Department Tracks Through SFT – Report Them to Stay Safe
The SFT is linked to your PAN, which means the tax
department can match your financial activity with the income you declare in
your ITR. If there’s a mismatch, you may get a notice and even face penalties
or prosecution.
Example:
If you declare an annual income of ₹2 lakh but buy gold
worth ₹14 lakh, the tax department will want to know where the money came from.
A person who forgot to mention ₹25,000 interest income in
his ITR was caught because banks reported it under SFT.
A businessman who sold land but didn’t show the capital
gains in his ITR was caught through SFT data, and faced penalty plus
prosecution.
How SFT Helps Track Transactions
Banks, mutual funds, registrars, and other financial
entities report your high-value transactions to the IT department.
This data gets automatically filled into your Annual
Information Statement (AIS), which you can view before filing your ITR.
By checking your AIS, you can ensure that your ITR matches
what the tax department already knows about your finances — avoiding mistakes,
delays, or penalties.
Key Takeaway
Always cross-check your AIS while filing ITR. If you miss
reporting income or a transaction, chances are the tax department already knows
through SFT. Reporting it correctly keeps you safe from scrutiny and legal
trouble.
16 Transactions That the Tax Department Tracks via SFT
Every time you do a high-value transaction, your bank,
mutual fund, or other financial institution is required to report it to the
Income Tax Department through Specified Financial Transactions (SFT). These
details are automatically reflected in your Annual Information Statement (AIS).
Here’s the list of transactions you should be careful about:
Buying bank drafts, pay orders, or banker’s cheques with
cash – if you spend ₹10 lakh or more in a year.
Buying RBI prepaid instruments (like prepaid cards or
wallets) with cash – if the total is ₹10 lakh or more in a year.
Cash deposits into current accounts – if deposits across all
your current accounts add up to ₹50 lakh or more in a year.
Cash withdrawals from current accounts – if total
withdrawals are ₹50 lakh or more in a year.
Cash deposits into savings accounts or other accounts
(except current account or FDs) – if deposits are ₹10 lakh or more in a year
(reported by banks, co-op banks, or post offices).
Cash received for sale of goods or services – if over ₹2
lakh in a year (applies to businesses covered under tax audit).
Cash payment towards credit cards – if ₹1 lakh or more in a
year.
Non-cash payment towards credit cards – if ₹10 lakh or more
in a year (via cheque, transfer, etc.).
Fixed deposits (time deposits) – if you put ₹10 lakh or more
in a year (excluding renewals). Reported by banks, post office, NBFCs, and
Nidhi companies.
Buying bonds or debentures – if you invest ₹10 lakh or more
in a year.
Buying company shares (including share application money) –
if ₹10 lakh or more in a year.
Company buyback of its own shares – if ₹10 lakh or more in a
year.
Investing in mutual fund schemes – if ₹10 lakh or more in a
year (excluding switching between schemes).
Buying or selling property – if the transaction value is ₹30
lakh or more (as per actual value or stamp duty valuation).
Buying foreign currency (or loading forex cards, traveller’s
cheques, drafts, etc.) – if transactions add up to ₹10 lakh or more in a year.
Spending abroad in foreign currency (using debit/credit
card, traveler’s cheques, etc.) – if expenses add up to ₹10 lakh or more in a
year.
Key takeaway: If you cross
these thresholds, the tax department already knows. Always match your ITR with
your AIS to avoid notices, penalties, or even prosecution.
What Happens If You Don’t Report Income Shown in SFT and
AIS?
The Specified Financial Transactions (SFT) data reported by
banks, mutual funds, property registrars, and other entities gets auto-filled
into your Annual Information Statement (AIS). The Income Tax Department
cross-checks this with the income you declare in your ITR.
If there’s a mismatch, or if you fail to report these
incomes, here’s what could happen:
1. You May Get a Tax Notice
If high-value transactions appear in your AIS but are
missing in your ITR, the department can send you a notice. You may be asked to
explain the source of funds or file a revised return (ITR-U) if you missed
reporting.
2. Your Case May Go Into Scrutiny
If your ITR doesn’t match the SFT data, or if you haven’t
filed an ITR at all, or if your reply to a notice is unsatisfactory, the tax
authorities may select your case for detailed scrutiny.
3. Penalty for Misreporting Income
If the authorities find that you’ve under-reported or
misreported income, they can raise additional tax demands with interest. On top
of that, they can impose a penalty ranging from 50% to 200% of the extra tax
payable.
4. Possible Prosecution (Jail Term)
In serious cases of willful tax evasion, prosecution can be
launched:
If tax evaded exceeds ₹25 lakh → Rigorous imprisonment of 6
months to 7 years, plus fine.
Other cases of concealment/misreporting → Jail for 3 months
to 2 years, plus fine.
5. Relief in Some Cases
Not all cases go straight to prosecution. Taxpayers may get
relief under compounding provisions — subject to conditions and approval from
the tax authority. This means penalties may be settled without jail, but only
if the department allows it.
Bottom line: The tax department
already has your data through SFT. Always cross-check your AIS before filing
your ITR and ensure full disclosure. Missing or mismatching information can not
only cost you extra tax and penalties but in extreme cases, even land you in
jail.
