Cash transaction limits in buying and selling Properties: In the realm of real estate transactions, the use of cash has long been a common practice. However, with the ever-evolving landscape of taxation laws, it becomes imperative for property buyers and sellers to be aware of the limits imposed on cash transactions, particularly when it comes to income tax. People have many questions on cash limit for buying or selling the properties. What is the Cash Transaction Limit for Property Purchase? Can a person purchase a land in cash? Can we buy the property in India and pay the full amount in cash? What is the penalty for purchase of immovable property in cash? Can we pay more than 10000 in cash? Is 2 lakhs a limit for cash transaction?
On June 1, 2015, transactions in immovable properties for cash over Rs 20,000 were banned. The government made these changes to stop black money. Reportedly, changes were also made in 269T, 271D, and 271E of the Income Tax Act.
According to section 269SS, if a person is involved in transactions in immovable properties for cash more than Rs 20,000, they will be subjected to a 100 percent penalty. As part of the fine, they have to deposit the entire proceeds of the property sold to the Income Tax department. Section 271D makes it compulsory for the joint commissioner of income tax to charge this penalty without any leeway or exemptions.
The person who breaches the provisions of section 269T of the Income Tax Act is liable to pay the penalty under section 271E of the Income Tax Act. The basic understanding of section 269T states that the person cannot repay any loans / deposits / specified advances in cash if the amount of payment is INR 20,000 or more. While repaying such loans / deposits / specified advances, if the person doesn’t satisfy the restriction imposed under section 269T, then such a person would be liable to pay the penalty under section 271E.
Section 269T of the Income Tax Act
This act prohibits an individual from repaying the deposit or specified sum, or loan. It can be repaid by a bank draft of an account payee or account payee cheque via the electronic clearing system of a bank account. The repayment can be done only under these conditions-
- The deposited amount of the deposit or loan, including the interest amount, is Rs. 20,000 or more, or,
- The total sum of the deposit, adding the interest amount held by an individual in their name or with some person, is Rs. 20,000 or more.
In other words, a person is not allowed to repay the deposit or loan in cash if the amount is equal to Rs. 20,000 or more under Section 269T of the Income Tax Act.
The Government or any organisation established by the State, Central, or Provincial Act is exempted from this act.
Individuals are allowed to do cash transactions up to Rs 20,000. This amount will be shown in your registry as well. Transactions above that amount can be done via cheque or electronic transaction.
Question: We are selling an immovable property for 30 lakhs. We have got the cheque for 20 lakhs. However, now the purchaser wants to make cash deposit in our bank account of Rs 1 lakh each for 10 days daily. Is this allowed?
Answer: Section 269SS states the Mode of taking or accepting certain loans, deposits and specified sum for more than Rs 20,000 should be account payee cheque or account payee bank draft or use of electronic clearing system.
“Specified sum” means any sum of money receivable, whether as advance or otherwise, in relation to transfer of an immovable property, whether or not the transfer takes place. If a person takes or accepts any loan or deposit or specified sum in contravention of the provisions of section 269SS, he shall be liable to pay, by way of penalty, 100% of the amount of the loan or deposit or specified sum so taken or accepted. Therefore, it is not allowed.
Question: What are legal restrictions and reporting requirements are required for property purchases?
Answer: Here’s the general framework for restriction on cash payment for purchase of property:
- Section 269SS and 269T of the Income Tax Act: These sections regulate the acceptance and repayment of loans or deposits in cash. According to Section 269SS, no person can take or accept any loan or deposit above Rs. 20,000 in cash. Likewise, Section 269T prohibits the repayment of loans or deposits above Rs. 20,000 in cash. These sections are also applied to property transactions.
- Real Estate (Regulation and Development) Act, 2016 (RERA): It focuses on transparency in transactions. Cash transactions are discouraged, and transactions are expected to be paid out through banking channels.
- Stamp Duty and Registration Fees: These are required to be paid in the form of a demand draft, pay order, or online transfer. Cash payments for these fees are limited or not allowed.
- Benami Transactions (Prohibition) Act, 1988: It prohibits the transactions in which the property is held by one person, but the consideration or control over the property is retained by another person.
It’s important to note that any cash limit in property purchases could attract attention from tax authorities. It can be investigated for tax evasion or other legal violations.
If the stipulated cash limit is exceeded in a property transaction, both the buyer and seller may face legal consequences. The income tax authorities have the right to scrutinize such transactions, and if found in violation, penalties and fines may be imposed. Additionally, the transaction may be considered void, leading to potential legal disputes.