With the May 31 deadline for filing the Statement of Financial Transactions (SFT) fast approaching, tax experts are advising individuals to meticulously review their financial records. Errors in SFT reporting by financial institutions can lead to significant complications for Income Tax Return (ITR) filers, including mismatches, notices from the tax department, and delays in refund processing.
What is the Statement of Financial Transactions (SFT)?
The SFT is a critical reporting mechanism established under Section 285BA of the Income-tax Act. Through Form 61A, designated entities are required to disclose specific high-value financial transactions to the Income Tax Department. These disclosures are vital for tax authorities to verify the accuracy of income and investment reporting by taxpayers in their ITRs.
Entities mandated to submit SFT reports include:
- Banks and Non-Banking Financial Companies (NBFCs)
- Post offices
- Mutual fund trustees
- Forex dealers
- Property registrars
- Companies issuing dividends or conducting share buybacks
Why the May 31 Deadline Matters for Taxpayers
Reporting entities must file SFTs annually by May 31 following the end of the financial year. The data submitted via SFTs populates taxpayers' Annual Information Statement (AIS), a key document utilized by the Income Tax Department during ITR processing. Since the department cross-references ITR declarations with information available in AIS and other databases, any discrepancies can trigger official notices, prolong refund times, or necessitate additional clarifications.
Common SFT Reporting Errors to Watch For
Analysis of past SFT filings has revealed recurring issues that can impact taxpayers:
- Duplicate Reporting: Transactions being reported more than once.
- Incorrect Transaction Values: Discrepancies in the monetary amounts reported.
- Missing or Wrong PAN Details: Errors in Permanent Account Number (PAN) attribution.
The risk of such reporting inaccuracies is often higher in scenarios involving joint bank accounts or jointly held investments, where transaction values might be incorrectly assigned to only one holder. Officials have also pointed to inadequate reconciliation processes, weak internal controls, and delayed reporting as frequent shortcomings among reporting entities.
Impact on Your Income Tax Return (ITR)
Even if a taxpayer has accurately filed their ITR, erroneous SFT reporting can create mismatches between the income declared and the tax department's records. This can lead to:
- Receiving intimation notices.
- Delayed tax refunds.
- Requests for additional verification.
- In some instances, the ITR being flagged as defective.
Tax professionals caution that rectifying these discrepancies can be a time-consuming process, frequently requiring financial institutions to amend their original SFT submissions.
What Taxpayers Should Do Before Filing
Experts strongly advise taxpayers to download and thoroughly review both their Annual Information Statement (AIS) and Form 26AS before submitting their returns for Assessment Year 2026-27. It is crucial to verify all details pertaining to interest income, dividends, mutual fund transactions, securities trades, and property transactions.
If any discrepancy is identified, it should be reported promptly through the Income Tax portal or directly with the concerned financial institution. A clean and accurate AIS can significantly contribute to smoother ITR filing and minimize the likelihood of receiving notices or experiencing refund delays. With the Income Tax Department already enabling online filing of ITR-1, ITR-2, and ITR-4 forms for Assessment Year 2026-27, taxpayers have a limited window to reconcile their records before the July 31 ITR filing deadline.