Most people are aware that the Income Tax Department keeps a close watch on large financial transactions. But few know the exact mechanism behind this surveillance. Rule 114E of the Income Tax Rules, 1962 is the provision that makes it happen. It requires certain specified entities — banks, mutual funds, registrars, companies and others, to report high-value transactions of their customers directly to the tax department every year. This reporting is done through a statement called Form 61A, also known as the Statement of Financial Transactions or SFT.
If you have ever received an AIS or Annual Information Statement notice from the Income Tax Department showing transactions you never disclosed, Rule 114E is almost certainly how that information reached them.
What Is Rule 114E and Why Does It Exist?
Rule 114E was introduced to create a systematic third-party reporting mechanism. Instead of relying solely on taxpayers to disclose their own income and investments, the tax department receives data directly from banks, registrars, mutual fund houses, stock exchanges and other financial intermediaries. This data is then matched against the taxpayer’s ITR. Any mismatch can trigger a notice, scrutiny or even a penalty.
The statement must be filed in Form 61A and submitted on or before 31st May following the close of the financial year in which the transaction was registered or recorded.
Who Is Required to File Form 61A?
The obligation to report does not fall on the taxpayer. It falls on the entity that records or registers the transaction. These entities are called “reporting persons” under the rule. They include banks and co-operative banks, post offices, Nidhi companies, NBFCs authorised to accept public deposits, companies issuing shares or debentures, mutual fund trustees, authorised foreign exchange dealers, property registrars, and any person liable to tax audit under Section 44AB of the Income Tax Act.
Each of these entities is required to report specific types of transactions once they cross defined threshold amounts.
What Transactions Must Be Reported and at What Thresholds?
The rule lays down thirteen categories of transactions that must be reported. Here is a plain-language summary of the key ones.
- Cash deposits of Rs. 10 lakh or more in a savings or recurring account in a financial year must be reported by banks and post offices. This is one of the most commonly triggered thresholds for ordinary account holders.
- Cash deposits or withdrawals of Rs. 50 lakh or more in a current account in a financial year must be reported by banks. This threshold is relevant for business owners and proprietors who operate through current accounts.
- Cash payments of Rs. 10 lakh or more for purchase of bank drafts, pay orders or prepaid instruments issued by the RBI must be reported by the bank through which the payment is made.
- Credit card bill payments of Rs. 1 lakh or more in cash, or Rs. 10 lakh or more through any other mode, in a financial year must be reported by the bank or credit card issuing company. High credit card spenders are therefore visible to the tax department even if they pay by cheque or online transfer.
- Time deposits of Rs. 10 lakh or more in a financial year, excluding renewals of existing deposits, must be reported by banks, post offices, Nidhi companies and eligible NBFCs.
- Purchase or sale of immovable property worth Rs. 30 lakh or more, or valued by the stamp authority at Rs. 30 lakh or more, must be reported by the Sub-Registrar or Inspector-General at the time of registration.
- Receipt of Rs. 10 lakh or more for acquiring bonds or debentures issued by a company must be reported by that company.
- Receipt of Rs. 10 lakh or more for acquiring shares including share application money must be reported by the issuing company.
- Buyback of shares for Rs. 10 lakh or more from individuals, other than open market purchases, must be reported by the listed company conducting the buyback.
- Receipt of Rs. 10 lakh or more for acquiring units of mutual fund schemes must be reported by the mutual fund or its trustee.
- Foreign currency transactions including forex cards, traveller’s cheques and related instruments aggregating to Rs. 10 lakh or more in a financial year must be reported by authorised forex dealers.
- Cash receipts exceeding Rs. 2 lakh for sale of goods or services of any kind must be reported by any person who is subject to a tax audit under Section 44AB. This is a broad provision that catches large cash sales even outside the banking system.
There were also two special categories introduced during and after demonetisation in 2016, covering cash deposits made between 9th November 2016 and 30th December 2016 above specific thresholds.
Recent Addition — Pre-Filling of ITR
A newer provision under sub-rule 5A requires certain entities to report capital gains on transfer of listed securities and mutual fund units, dividend income and interest income. This information is reported by stock exchanges, depositories, clearing corporations, registrars, companies and banks. The purpose is to enable the Income Tax Department to pre-fill ITR forms with this data so that taxpayers can verify and confirm it rather than entering it manually.
Compliance Obligations for Reporting Entities
Every reporting entity must register with the Principal Director General of Income Tax (Systems) and provide the name and details of a Designated Director and a Principal Officer. The Designated Director is typically the Managing Director or whole-time Director in a company, the managing partner in a firm, or the proprietor in a proprietorship. The statement must be signed and filed by this Designated Director under a valid digital signature.
What This Means for Taxpayers
If you have carried out any of the transactions listed above during a financial year, the relevant institution has already reported it to the Income Tax Department. This information appears in your AIS on the income tax portal. The department will compare this with your ITR filing. If there is a mismatch — for instance, you received Rs. 15 lakh in your savings account as cash but did not explain the source — you may receive a notice under Section 133(6) or face scrutiny assessment.
The best approach is to check your AIS before filing your ITR, verify the reported transactions, and ensure that all high-value receipts, deposits, investments and property transactions are properly accounted for in your return.
This article is for general informational purposes only and does not constitute tax advice.
