Securities and Mutual Fund Trades in Your Demat Account Will Now Be Reported Directly to the Tax Department — What Every Investor Should Expect From New SFT Rules
CBDT’s updated SFT reporting transforms capital gains calculation, return prefilling and how Demat investors interact with the tax system.
What Are SFTs and Why Has CBDT Changed the Rules for Depository Transactions?
A Statement of Financial Transactions (SFT) is a mechanism where specified entities report high-value transactions to the Income Tax Department. Traditionally, banks and firms reported deposits or large purchases; now, depositories (like NSDL or CDSL) must report details of your securities and mutual fund trades.
CBDT’s new rules (notified under section 508(1) of the Income-tax Act, 2025 and rule 237(6) of Income-tax Rules, 2026) specifically target capital gains and aim to help pre-fill this data in your income-tax returns, making return filing more accurate and streamlined.
Who Has to Report, What, and When?
Who must report? Any entity defined as a ‘depository’ under the Depositories Act, 1996 — mainly NSDL, CDSL, and similar bodies.
What must they report?
- Summary of all Demat account transactions, both on-market and off-market (e.g., gifts, ESOPs transfers, account closures).
- Sale and purchase details for listed shares and mutual funds.
- Capital gains/loss computation using prescribed methods.
When? Twice a year:
- Reporting for April–September: Due October 31
- Reporting for October–March: Due April 30
These reports go to both the Income Tax Department and the Demat account holder.
Making Sense of Capital Gains: FIFO, Cost Calculation and Grandfathering
- How holding period is decided: The First-In-First-Out (FIFO) principle is mandatory — the oldest holdings are assumed sold first.
- Cost of acquisition:
- For securities bought BEFORE 1 Feb 2018: Use the lower of the Fair Market Value (FMV) on 31 January 2018 or actual sale price, but not less than original cost (grandfathering).
- For securities bought FROM 1 Feb 2018: Use weighted average purchase price.
| Purchase Date | Cost Calculation |
|---|---|
| Before Feb 1, 2018 | Lower of FMV on Jan 31, 2018, or sale price, but not less than actual cost (as per grandfathering) |
| Feb 1, 2018 onwards | Weighted average price based on every batch bought |
- On-market vs. Off-market: Off-market transactions (gifts, transfers not routed via exchanges, etc.) are reported separately, increasing tax transparency for cases often overlooked.
What Will Taxpayers See — and Can You Change What Is Pre-Filled?
- The capital gain details provided by depositories will be pre-filled in your income tax return forms via the Annual Information Statement (AIS).
- You are still responsible for verifying these numbers.
- If you notice discrepancies in sale value or cost of acquisition, you can edit these figures in your tax return before final filing. The SFT data is meant to aid, not override, your own records.
What Data Will Be Submitted (and How Secure Is It)?
Every depository must upload four types of files:
- DEP_BATCH.TXT — tracking the file submission batch.
- DEP_ACC_SUMM.TXT — account summary per investor.
- DEP_TRN_SUMM.TXT — transaction summary (sale, purchase in detail).
- DEP_OFF_TRN.TXT — off-market transaction summary.
Depositories have explicit duties on information security, data archival, and retrieval — key concerns, given the sensitivity and scope of this reporting.
Correction, Deletion, and What If There’s An Error?
If a depository discovers an error after submitting SFT data, correction and deletion mechanisms exist — a crucial requirement given the complexity and potential impact of large-scale reporting.
Practical Takeaways for Investors and Tax Professionals
- Expect more accurate, but also more visible (to the tax department) capital gains information in your AIS and pre-filled returns — making under-reporting riskier.
- Verify every traded security’s sale/purchase value and cost in your personal records before filing — especially if you hold legacy securities, off-market assets or mutual funds.
- Demat account holders will officially receive a copy of the SFT as submitted for their PAN.
- Check carefully for discrepancies, particularly with assets acquired before Feb 1, 2018, due to the special cost computation (grandfathering) rules.
Important Dates
| Reporting Period | SFT Due Date |
|---|---|
| April–September | October 31 |
| October–March | April 30 |
What’s Next?
For most individual investors, the biggest impact will be:
- More detailed tax department visibility into securities trading.
- Pre-populated, but not always perfect, capital gains data.
- A greater onus to review and correct — not just rely — on what’s auto-filled.
Expect further clarifications once this regime is live and taxpayers, depositories, and professionals work through its practical impact during the first filing season.
Frequently asked questions
What is an SFT and why is it important for Demat account holders?
A Statement of Financial Transactions (SFT) is a report submitted by specified entities, now including depositories, detailing financial transactions—such as securities or mutual fund trades—so the Income Tax Department can pre-fill these details in your tax return.
How does the new SFT reporting affect my income-tax return?
The information from SFT filings by depositories will appear as pre-filled capital gains and related details in your return; you must verify and can correct these figures before filing.
How is the cost of acquisition determined for securities bought before February 1, 2018?
For such assets, the cost is the lower of Fair Market Value (FMV) as on January 31, 2018, or the sale price, but never less than the actual purchase cost—this is called 'grandfathering'.
Are gifts and off-market transfers also reported?
Yes, off-market transactions—including gifts, ESOPs, and account closures—are reported separately in the SFT, making them visible to the tax department.
What can I do if my Demat transactions are misreported in the SFT?
Depositories have a correction mechanism; you can also edit incorrect sale or acquisition data in your tax return before submitting it.
Will these rules affect only Demat account holders?
Primarily, yes—these rules apply to all investors holding securities or mutual funds via depositories, but tax professionals and institutions are also stakeholders in the new compliance ecosystem.