Central Board of Direct Taxes have issued a significant corrigendum (Notification No. 3 of 2021) on November 15, 2023, amending the Format, Procedure, and Guidelines for the submission of the Statement of Financial Transactions (SFT) for Depository Transactions. These changes impact the reporting of capital gains on the transfer of listed securities or units of mutual funds by Depository Institutions. Let’s delve into the key modifications.
Submission Frequency Change: The corrigendum introduces a noteworthy adjustment to the submission frequency. Effective April 1, 2023, financial transactions data will now be submitted on a half-yearly basis instead of the previous quarterly requirement. This means that data for the first half of the financial year (ending September 30) and the remaining half (ending March 31) should be furnished by October 31 and April 30, respectively.
Revised Sale Consideration Determination: The estimation of sale consideration for debit transactions undergoes a crucial change. Instead of relying on the best available price, it must now be determined using the Weighted Average Price. This modification provides a more accurate reflection of the actual value of executed transactions, allowing taxpayers to adjust the sales consideration before filing returns.
Minimum Holding Period Clarifications: The notification revises the minimum holding period for various security classes. Notably, if more than 35% of the total proceeds of a Unit of Equity Oriented Mutual Fund, Unit of Business Trust, or Other Units are invested in the equity shares of domestic companies, this information must be provided. Additionally, specific Mutual Funds meeting the criteria will be classified as short-term capital assets, effective from April 1, 2023.
Cost of Acquisition Determination: Changes are introduced in the determination of the cost of acquisition for credit transactions. The estimated cost will now be based on the weighted average price of the asset, considering the actual value of transactions. Special treatment is outlined for IPO credits, requiring the use of a specific formula for cost determination.
Depository Transaction Summary Updates: Annexure D sees updates, including the introduction of a new data field (Purchase Flag) to indicate whether the purchase of a security occurred before or after February 1, 2018. This enhances transparency and aligns reporting with the evolving landscape of financial transactions.
Conclusion: The corrigendum to Notification No. 3 of 2021 brings significant changes to the submission process for the Statement of Financial Transactions (SFT) for Depository Transactions in India. Depository Institutions must adapt to the revised guidelines, including adjustments in submission frequency, sale consideration determination, minimum holding period specifications, and the calculation of the cost of acquisition. Staying informed and implementing these changes accurately is crucial for ensuring compliance with the updated regulations.
Also Read: Revised SFT Submission Process for Mutual Fund Transactions
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Government of India
Ministry of Finance
Central Board of Direct Taxes
Directorate of Income Tax (Systems), New Delhi
Corrigendum to Notification No. 3 of 2021 Dated: 15/11/2023
Format, Procedure and Guidelines for submission of Statement of Financial Transactions (SFT) for Depository Transactions.
The format, procedure, and guidelines for submission of information relating to capital gains on transfer of listed securities or units of mutual funds by Depository Institutions was notified vide notification no. 3 of 2021 dated 30th April 2021 as per the mandate of Section 285BA of the Income Tax Act, 1961 and Rule 114E sub-rule 5A. The notification lists various files, file formats, data types for different data fields that need to be reported, and various DQ rules that should be validated by Depository Institutions before submission of the data.
2. Subsequently, discussions were held with representatives of Depository Institutions. Accordingly, following changes are made to the said notification.
3. The S. No. 6 of the existing notification mentions the following
“The statement of financial transactions relating to Financial Year 202021 shall be furnished on or before the 31st May 2021. Thereafter, the statement of financial transactions relating to the quarter ending 30th June, 31st September, 31st December and 31st March shall be furnished on or before 25th of July, October, January and April respectively.”
This should be read as following:
“With effect from 1st April 2023 the statement of financial transactions data will be submitted on half yearly basis instead of existing quarterly basis i.e. data relating to 1st half of the Financial Year ending 30th September and remaining half of the Financial Year ending on 31st March shall be furnished on or before 31st of October and 30th of April respectively.”
4. In annexure A (Guidelines for Preparation of Statement of Financial Transactions (SFT)) of the existing notification, S.No.3 mentions the following:
“The Estimated Sale Consideration for the debit transaction should be determined on the best possible available price of the asset with the depository (e.g. end of day price). The taxpayer will be able to modify the sales consideration before filing the return.”
This should be read as following:
“The Estimated Sale Consideration for the debit transaction should be determined on Weighted Average Price i.e., taking into actual value of the transactions executed. The taxpayer will be able to modify the sales consideration before filing the return.”
5. In annexure A (Guidelines for Preparation of Statement of Financial Transactions (SFT)) of the existing notification, S.No.5 mentions the following:
| Security Class Code | Security Class Description | Minimum Period of Holding |
| LES | Listed Equity Share | 12 months |
| LPS | Listed Preference Share | 12 months |
| LDB | Listed Debenture | 12 months |
| ZCB | Zero Coupon Bond | 12 months |
| CIB | Listed Capital Indexed Bond | 12 months |
| EMF | Unit of Equity Oriented
Mutual Fund |
12 months |
| UTI | Unit of UTI | 12 months |
| UBT | Unit of Business Trust | 36 months |
| OTU | Other Units | 36 months |
| OTH | Other Listed Securities (Other than a unit) | 12 months |
This should be read as following:
| Security Class Code | Security Class Description | Minimum Period of Holding | Remarks |
| LES | Listed Equity Share | 12 months | – |
| LPS | Listed Preference Share | 12 months | – |
| LDB | Listed Debenture | 12 months | – |
| ZCB | Zero Coupon Bond | 12 months | – |
| CIB | Listed Capital Indexed Bond | 12 months | – |
| EMF | Unit of Equity Oriented Mutual Fund | 12 months | – |
| UTI | Unit of UTI | 12 months | Where more than 35% of its total proceeds are invested in the equity shares of domestic companies, this information should be provided.
Note: Where not more than 35% of its total proceeds are invested in the equity shares of domestic companies, (Specified Mutual Fund), it will always be classified as short-term capital asset (Applicable from 1st April 2023) |
| UBT | Unit of Business Trust | 36 months | Where more than 35% of its total proceeds are invested in the equity shares of domestic companies, this information should be provided.
Note: Where not more than 35% of its total proceeds are invested in the equity shares of domestic companies, (Specified Mutual Fund), it will always be classified as short-term capital asset (Applicable from 1st April 2023) |
| OTU | Other Units | 36 months | Where more than 35% of its total proceeds are invested in the equity shares of domestic companies, this information should be provided.
Note: Where not more than 35% of its total proceeds are invested in the equity shares of domestic companies, (Specified Mutual Fund), it will always be classified as short-term capital asset (Applicable from 1st April 2023) |
| OTH | Other Listed Securities (Other than a unit) | 12 months | – |
| MLD | Market Linked Debenture | — | Short-Term Capital Assets (w.e.f. 1st April 2024) |
6. In annexure A (Guidelines for Preparation of Statement of Financial Transactions (SFT)) of the existing notification, S.No.6 mentions the following:
“For every debit transaction, the corresponding credit transaction should be identified using First in First Out (FIFO) method. The estimated cost of acquisition for the credit should be determined on the best possible available price with the depository. The cost of acquisition can be estimated as per the closing rate on the date (T-2) of transaction for market purchase. The estimated cost of acquisition is to be taken as NIL for OFF Market purchase, IPO or Corporate Action or for any transaction through other than Exchange. The taxpayer will be able to modify the cost of acquisition before filing the return.”
This should be read as following:
“For every debit transaction, the corresponding credit transaction should be identified using First in First Out (FIFO) method. The estimated cost of acquisition for the credit should be determined on weighted average price of the asset i.e taking into actual value of the transactions, if purchase was made after 1st February 2018 or End of the day price, if purchase was made before 1st February 2018, available with the depository. The estimated cost of acquisition is to be taken as NIL for OFF Market purchase, Corporate Action or for any transaction through other than Exchange. IPO credit will be treated as Market credit and cost of the acquisition of the same will be arrived using the formula i.e. Number of shares allotted x Per unit price at which share is allotted. The taxpayer will be able to modify the cost of acquisition before filing the return.”
7. In annexure D (D.3- Depository Transaction Summary (DEP_TRN_Summ.TXT)) of the existing notification, the data fields 16,17 8618 is mentioned as following
| # | Field | Mandatory | Format | Remarks |
| 16. | Unit Sale price | Y | DECIMAL
(18,2) |
Estimated Sale price per unit. |
| 17. | Sale Consideration | Y | Decimal
(18,2) |
Estimated Sale Consideration. Refer Guidelines |
| 18. | COA | Y | DECIMAL
(18,2) |
Estimated Cost of acquisition without indexation. Refer Guidelines |
These should be read as following:
| # | Field | Mandatory | Format | Remarks |
| 16. | Unit price | Y | DECIMAL
(18,2) |
Weighted Average sale price per unit (taking into account the actual value of the transactions) |
| 17. | Sale
Consideration |
Y | Decimal (18,2) | Estimated Sale Consideration at Weighted Average price (taking into account the actual value of the transactions) |
| 18. | COA | Y | Decimal (18,2) |
Estimated Cost of acquisition without indexation Refer Guidelines. |
8. In annexure D (D.3- Depository Transaction Summary (DEP_TRN_Summ.TXT)) of the existing notification, a new data field 24 is added for flag indication if the purchase of the security was before 1st February 2018 or after
| # | Field | Mandatory | *Flag | Format | Remarks |
| 24. | Purchase Flag | Y | B/ A | VARCHAR(1) | Flag B: Purchase was made before 1st February 2018Flag A: Purchase was made on or after 1st February 2018 |
(ANIITAV)
DGIT(Systems), Delhi
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