The government has been scrambling since the demonetisation drive began to stay a step ahead of black money hoarders and to keep a check on transactions made by the companies. Many companies including NBFC’s are facing the wrath of the government’s policies moves in the recent times To add to it, the reporting of Statement of Financial Transaction under Section 285BA of Income Tax Act 1961 has added more to their compliance requirements.
Finance Act, 2003 first introduced the concept of furnishing of statements by companies bringing in Section 285BA wef from 1st April’ 2004, and was named as ‘Annual Information Return”. The same was introduced to facilitate the collection of information by Central Information Branch (CIB) relating to financial transactions.
Before the introduction of section 285BA, there were several hurdles in the collection of information by CIB and often the coverage sources was incomplete. Section 285BA was introduced with the intent to provide a mechanism wherein flow of information regarding the material financial transactions entered into by a taxpayer with other persons is automatic so that the same can be utilised for widening and deepening of the tax base.
Section 285BA further got substituted by later Finance Acts and was last amended by Finance Act, 2014 naming it as “Obligation to furnish Statement of Reporting Financial transaction or Reportable Account.”
Thereafter Government with its Notification No. 95/2015[F.No.142/28/2012-(SO)TPL] dated 30th December 2015 introduced Rule 114E detailing the reportable persons and transactions in respect of which they are required to furnish such statements. However the applicability of such Rule 114E was made prospective from 1st April 2016.
Provisions of the Act
Section 285BA of the Income Tax Act 1961 (IT Act) lays down the obligation of certain specified persons who are required to submit information of those high value transactions registered or recorded by them during the financial year as specified in the rules. It further provides guidelines for the reporting person and reportable transactions for which the statements need to be submitted.
Section 285BA(1) describes “specified person” as:
Any person, being—
(a) an assessee; or
(b) the prescribed person in the case of an office of Government; or
(c) a local authority or other public body or association; or
(d) the Registrar or Sub-Registrar appointed under section 6 of the Registration Act, 1908 (16 of 1908); or
(e) the registering authority empowered to register motor vehicles under Chapter IV of the Motor Vehicles Act, 1988 (59 of 1988) ; or
(f) the Post Master General as referred to in clause (j) of section 2 of the Indian Post Office Act, 1898 (6 of 1898) ; or
(g) the Collector referred to in clause (g) of section 3 of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and
Resettlement Act, 2013 (30 of 2013) ; or
(h) the recognised stock exchange referred to in clause (f) of section 2 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956) ; or
(i) an officer of the Reserve Bank of India, constituted under section 3 of the Reserve Bank of India Act, 1934 (2 of 1934); or
(j) a depository referred to in clause (e) of subsection
(1) of section 2 of the Depositories Act, 1996 (22 of 1996) ; or
(k) a prescribed reporting financial institution,
who is responsible for registering, or, maintaining books of account or other document containing a record of any specified financial transaction.
The meaning of the word “assessee” should be taken from the Section 2(7) of the main Income Tax Act where it states that “assessee” means a person by whom any tax or any other sum of money is payable under this Act, and includes —
(a) every person in respect of whom any proceeding under this Act has been taken for the assessment of his income or assessment of fringe benefits or of the income of any other person in respect of which he is assessable, or of the loss sustained by him or by such other person, or of the amount of refund due to him or to such other person ;
(b) every person who is deemed to be an assessee under any provision of this Act ;
(c) every person who is deemed to be an assessee in default under any provision of this Act”
Since assesse has been defined exhaustively to include every such person who is required to pay tax, NBFC’s being a taxable person are also clothed in the reporting provisions laid down in the rules
The reportable person is required to furnish statement on specified financial transaction. The specified financial transaction have been defined in the Section 285BA as
“(a) transaction of purchase, sale or exchange of goods or property or right or interest in a property; or
(b) transaction for rendering any service; or
(c) transaction under a works contract; or
(d) transaction by way of an investment made or an expenditure incurred; or
(e) transaction for taking or accepting any loan or deposit,
which may be prescribed
However the act states that the limit of the specified transactions beyond which reporting is required should not be less than fifty thousand, the values assigned for the transactions have been mentioned in the rules. There are 13 transactions which have been classified as reportable under such rules. The transactions which fall under the purview of reporting for NBFC’s have been summarized in the below mentioned table:
|SL. No||Nature of Transactions||Value of such transaction|
|1||One or more time deposits (other than a time deposit made through renewal of another time deposit) of a person||Aggregating to ten lakh rupees or more in a financial year of a person|
|2||Receipt from any person of an amount for acquiring bonds or debentures issued by the company or institution (other than the amount received on account of renewal of the bond or debenture issued by that company).||Aggregating to ten lakh rupees or more in a financial year|
|3||Receipt from any person of an amount for acquiring shares (including share application money) issued by the company.||Aggregating to ten lakh rupees or more in a financial year|
|4||Buy back of shares from any person||Aggregating to ten lakh rupees or more in a financial year.|
|5||Receipt of cash payment for sale, by any person, of
goods or services of any nature
|Exceeding two lakh rupees|
Deposits received by the company from a person for a specified period of time which in aggregate exceeds ten lakhs, NBFCs have to report all such names to the department. Irrespective of whether the deposit is received in cash or through banking channels, the transactions have to be reported. Also it is to be noted that only time deposits have been covered under the point so mentioned.
The definition of the time deposit has to be taken from RBI Master Circular which includes deposit received by the bank for a fixed period and which is withdrawable only after the expiry of the said fixed period and shall also include deposits such as Recurring/Cumulative/ Annuity/Reinvestment deposits, Cash Certificates. Therefore any such deposits which are not covered in the above definition will not be considered in reporting transactions.
For instance if a person makes a deposits of 2 lakhs each every two month, such deposits aggregating to 12 lakhs exceeds the limit specified and hence the section gets attracted.
Any amount received by the NBFC’s on issue of shares, bonds and debentures in the financial year whose aggregate exceeds 10 lakhs, from a person, would fall under the scope of reporting requirements. Issue of debentures/ bonds is a regular affair for NBFCs and it is very likely that for larger NBFCs the investors are also making high ticket investments. Several NBFCs and companies use share application money route for short term deployment of funds. These usually would come from the promoters and friends and family of promoters. Shares include preference, equity or instrument having features of shares such as warrants.
The reporting requirement is not a one-time investment from a person in a financial year. The requirement extends if in aggregate also the investment from a person crosses the threshold limit.
All listed NBFC’s who buy back shares in pursuant to Sec 68 of the Companies Act 2013 for an amount exceeding 10 lakhs in the financial year have also to report such transactions. So all ESOP related transactions would also come under the reporting requirement ambit. To specifically mention that only listed companies have been included for such requirement.
Point 5 in the table above, is applicable for only those NBFCs whose accounts are liable for tax audit. Small NBFCs are exempted from such reporting. The limit mentioned for such transaction is kept at two lakhs. Therefore cash received for any sale of services by such NBFC’s which exceeds two lakhs would fall in the section. The rules however specifically state that for considering the value for such reporting, individual transactions need to be checked and not the aggregate. So each individual transaction need to be checked separately and if any of such transaction exceeds the limit of two lakh, section would be attracted.
FORM 61A and its contents
The rules have clarified that reporting of specified transactions shall be furnished in Form 61A. The prescribed schema for Form 61A and a utility to prepare Form 61A XML file can be downloaded from the e-filing website home page. The form has been divided into four segments – Part A contains statement level information is common to all transaction types. The other three parts relate to report level information which has to be reported in one of the following parts (depending on the transaction type), Part B (Person Based Reporting), Part C (Account Based Reporting), Part D (Immovable Property Transaction Reporting.
Time Period of submitting the form
Form 61A needs to be submitted every year by 31st May of the year following the reporting period. For instance if the period of reporting where the transactions relate to FY 2017-18, the form needs to be filled by 31st May 2018. The return in Form No. 61A shall be furnished to the DIT (I & CI) or Jt. DIT (I & CI) through online transmission of digitally signed electronic data.
Income tax department, vide notification no 42/2017[F.No.370 142/17/2017-TPL]/GSR 546(E) dated 2nd June, 2017 has extended the due date for current year filing requirement to 31st June, 2017.
Penalty for failure to furnish statement of financial transaction
In respect of stringent conditions laid down in Section 271FA of the IT Act, NBFCs need to be cautious and carefully analyse the different transactions for the applicability of reporting.
Section 271FA of the IT Act lays down the penalty for the non-compliance of the reporting requirements. Where a person who is required to furnish a Statement of Reportable Transaction fails to furnish the same by the due date, the income tax authority can impose a penalty @ Rs 100/day of default
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