Statement of Financial Transactions

Buy or sell mutual fund units in size, and you leave a trail. The Income Tax Department wants to see that trail, quite apart from anything SEBI or the AMC is doing.

Section 285BA of the Income Tax Act makes this a rule. Specified entities must file a Statement of Financial Transactions (SFT). It lets the tax department track large financial activity, even when the taxpayer stays silent about it.

For a mutual fund, the trustee carries this duty. It runs in two separate strands, and the workbook keeps both apart from FATCA and CRS. This is a domestic Income Tax Act duty. It is not a cross-border one.

Strand one — unit purchases. A trustee of a mutual fund, or another person managing its affairs, must report to the Income Tax authority any receipt from a single person of Rs 10 lakh or more in a financial year, for acquiring units of one or more schemes of that mutual fund. Transfers from one scheme to another of the same mutual fund are excluded from this threshold — only genuine fresh money in counts. The RTA, on the AMC's behalf, prepares this data in the format required for upload to the CBDT reporting portal.

Strand two — capital gains transactions. Independently of the purchase-threshold report, MFRTAs are mandated to submit a separate Statement of Financial Transactions, SFT-081, which covers transactions attracting capital gains, to CBDT through its own defined mechanism.

Both strands sit inside the same chapter section as FATCA and CRS reporting, but they answer a different question: FATCA and CRS identify who is taxable where; the SFT reports how much money moved, regardless of the investor's tax residency.

Across one financial year, Mr Pillai puts Rs 14,00,000 of fresh money into two schemes of the same AMC, and separately switches Rs 6,00,000 from one scheme of that AMC into another.

The switch is excluded from the SFT purchase threshold — it is an inter-scheme transfer within the same mutual fund, not new money. But the Rs 14,00,000 of genuine purchases exceeds the Rs 10 lakh threshold, so the trustee must report his aggregate acquisitions for the year to the Income Tax authority, with the RTA preparing the data for the CBDT portal.

Separately, in the same year, Mr Pillai redeems Rs 9,50,000 of units bought two years earlier, realising a long-term capital gain of Rs 1,80,000. That redemption has nothing to do with the Rs 10 lakh purchase threshold — it is a disposal, not an acquisition — but it falls within the SFT-081 filing the MFRTA separately submits, because it is a transaction that attracts capital gains. One investor, one financial year, two different SFT obligations, triggered by two different kinds of transaction.

Chapter 11 (Operational Concepts of Mutual Funds), section 11.11 (Reporting Requirements to CBDT), covers the SFT immediately after FATCA and CRS, citing section 285BA of the Income Tax Act, the Rs 10 lakh threshold, the inter-scheme transfer exclusion, and the separate SFT-081 filing on capital-gains transactions. Expect a question distinguishing the Rs 10 lakh purchase-based SFT from FATCA/CRS, and one on what is excluded from the threshold.

• Rs 10 lakh is per person, per financial year, for acquiring units — not per transaction and not per scheme.
• Inter-scheme transfers within the same mutual fund are excluded from the threshold — a switch is not a fresh acquisition for this purpose.
• SFT-081 is a separate filing on capital-gains transactions, independent of the Rs 10 lakh purchase report — a redemption can trigger SFT-081 even if the investor never crossed Rs 10 lakh in purchases that year.
• This is a domestic Income Tax Act obligation (section 285BA), distinct from FATCA and CRS, which are cross-border reporting regimes — do not merge the two just because both appear in the same chapter section.
• The trustee is the reporting person, with the RTA preparing the data for upload — the RTA does not itself report to the Income Tax authority.