Section 508: obligation to furnish statement of financial transaction or reportable account

Introduction

Section 508 sets out who must report specified financial transactions or reportable accounts, how a defective or omitted statement is handled, and when an inaccuracy must be corrected. The named reporting categories include government bodies, registrars, stock exchanges, depositories and prescribed financial institutions; the prescribed transaction and account rules determine the particular filing.

Key takeaways

Who must report

The obligation applies to a wide list of persons, including:

• an assessee;
• the prescribed person, in the case of an office of Government;
• a local authority or other public body or association;
• the Registrar or Sub-Registrar appointed under section 6 of the Registration Act, 1908;
• the registering authority for motor vehicles under Chapter IV of the Motor Vehicles Act, 1988;
• the Director General as referred to in section 2(a) of the Post Office Act, 2023;
• the Collector referred to in section 3(g) of the Right to Fair Compensation and Transparency in Land Acquisition, Rehabilitation and Resettlement Act, 2013;
• a recognised stock exchange referred to in section 2(f) of the Securities Contracts (Regulation) Act, 1956;
• an officer of the Reserve Bank of India;
• a depository referred to in section 2(1)(e) of the Depositories Act, 1996;
• a prescribed reporting financial institution; or
• any other prescribed person who is responsible for registering or maintaining records of a specified financial transaction or reportable account.

What must be furnished, and to whom

Such a person must furnish a statement regarding the specified financial transaction or reportable account which is registered, recorded or maintained by them and which is relevant and required for the Act, to the income-tax authority or other prescribed authority or agency.

The statement is furnished for such period, within such time, and in such form and manner, as may be prescribed.

Meaning of "specified financial transaction"

"Specified financial transaction" means any transaction:

• of purchase, sale or exchange of goods or property or right or interest in a property; or
• for rendering any service; or
• under a works contract; or
• by way of an investment made or an expenditure incurred; or
• for taking or accepting any loan or deposit, as may be prescribed.

Different values for different transactions

The Board may prescribe different values for different transactions specified above, for different persons, having regard to the nature of the transaction.

Fixing defects in a statement

If the prescribed income-tax authority finds a defect in the statement, they may intimate it to the person, who must rectify it within thirty days of the intimation (extendable on application).

If the defect is not rectified within the initial or extended period, the Act applies as if the person had furnished inaccurate information in the statement, irrespective of anything else in the Act.

Notice for non-filing, and correcting inaccuracies

If a person fails to furnish the statement within the specified time, the prescribed income-tax authority may serve a notice requiring the statement within a period not exceeding thirty days from service of the notice.

If a person, having furnished a statement, becomes aware of any inaccuracy in the information provided, they must, within ten days, inform the prescribed authority of the inaccuracy and furnish correct information as prescribed.

Rule-making powers

The Central Government may, by rules, specify the persons to be registered with the prescribed income-tax authority, the nature and manner of maintaining information by such persons, and the due diligence to be carried out for identifying any reportable account.

Step-by-step flow for applying Section 508

1. 1

   Is the person in the list in Section 508(1) and responsible for registering or keeping records of a specified financial transaction or reportable account?

   The list runs from an assessee and government offices to registrars, motor vehicle registering authorities, stock exchanges, depositories, prescribed reporting financial institutions and any other prescribed person. Which transactions and accounts are covered is prescribed.

   • No: Section 508 does not require a statement from this person.
   • Yes: Go to the next step.
2. 2

   Is the transaction a "specified financial transaction"?

   Section 508(3) covers purchase, sale or exchange of goods or property, services, works contracts, investments or expenditure, and loans or deposits, as prescribed. Under Section 508(4) the Board may prescribe different values for different transactions and persons; the Act states no value.

3. 3

   Has the statement been furnished for the prescribed period and within the prescribed time?

   Section 508(2) leaves the period, time, form and manner to rules.

   • No: Under Section 508(7), the authority may serve a notice; the statement must then be furnished within the time in the notice, which cannot exceed thirty days from service. Then continue with step 4.
   • Yes: Go to the next step.
4. 4

   Has the authority intimated a defect?

   Under Section 508(5), the defect must be rectified within thirty days from the date of intimation, or within any extended period allowed on application.

   • Defect not rectified in time: Under Section 508(6), the Act applies as if the person had furnished inaccurate information in the statement.
   • Rectified, or no defect: Go to the next step.
5. 5

   Has the person later become aware of an inaccuracy?

   Under Section 508(8), the person must inform the authority within ten days and furnish the correct information in the prescribed manner. The Central Government may also make rules on registration, record-keeping and due diligence under Section 508(9).

Practical checklist

Glossary

Specified financial transaction

A prescribed transaction within the categories in section 508(3), with values that the Board may prescribe under sub-section (4).

Reportable account

An account required to be reported under the applicable prescribed financial-account reporting rules referred to in section 508.

Frequently asked questions