A person, interested in purchasing land, took to social media to express his anguish. Despite having own money in his bank account, he was unable to collect enough cash to meet the demands of sellers. His bank cited daily cash withdrawal limits, and to make matters worse, the seller was adamant about a deal involving huge cash. The buyer, caught in a legal and ethical dilemma, wondered if he was being forced to turn his clean money into black, to fulfil a dream of owning property. His experience, while unfortunate, is not unique. This article explores the dilemma of buying property in cash to explain that paying in cash for property purchases can cost dearly.
A potential buyer posts that his bank is not allowing free cash withdrawals of more than ₹2 lakhs for online comments. He has also been told that tax may be deducted on withdrawals. He finds this as troublesome as he does not have cash and the seller of property is refusing to accept money in his bank account. Seller is insisting on a substantial cash for the deal.
The buyer feels his is not an isolated case and seeks solutions from netizens. Keenly interested to purchase property he finds that he is being forced to convert his legal money into black, even though he knows that it is not the right thing to do.
Cash in property deals is illegal
The intended buyer who is posting online gets some suggestions to transfer money to family and friends and withdraw cash through them. He also gets a suggestion to enter into large value fictitious purchase deals and collect cash instead of real products. Example, make a jewellery purchase deal to collect cash. Any such idea comes with huge risks and can have serious repercussions. With the data analysis tools available with tax department, such actions are likely to get noticed, would be difficult to explain and would involve penalties.
A property transaction cannot legally involve cash. According to Section 269SS of the Income Tax Act, accepting more than ₹ 20,000 in cash for a deal in immovable property is not allowed. If the law is violated, there are penalties that may be up to 100% of the cash received, along with potential legal scrutiny and long-term consequences. Involvement in cash transactions can raise red flags during assessments by Income Tax Department.
Consult a tax professional
It is a good idea to stay on the right side of the law and consult a qualified tax professional while making high-value property deal. Transparent, bank-recorded transactions not only ensure legal safety but also help build a clean financial history.
Cash deals can be traps
If the deal goes south and the transfer does not happen as hoped, it may be very difficult to recover cash. The seller may simply avoid knowledge of cash component.
There are also future tax implications. A cash deal can significantly increase the capital gains tax liability in the future. If a property is purchased partially in cash, the actual purchase price is not reflected in documents. As a result, if the property is sold in future, the capital gains are calculated based on the declared purchase price, not what was actually paid. This artificially inflates the capital gains, leading to higher tax outgo.
A clean, documented transaction helps legally establish actual costs, and ensures accurate capital gains calculation, and protects buyer during resale or scrutiny.
Endnote – Avoid Cash Seller
It makes a lot of sense for property purchasers to avoid cash seller. There are sellers who prefer bank payments. They prefer to stay on the right side of law by paying proper taxes after tax planning. Accepting cash by sellers is a shortsighted response. To understand how sellers stand to gain in all white deals, read article – There is nothing black in white. There are many legal ways to save on capital gains tax.
Also read:
- There is nothing black in white – https://crorex.in/there-is-nothing-black-in-white/
- Banks deduct TDS in case of cash withdrawals. TDS is be deducted at 2% on cash withdrawals of more than ₹ 20 lakh and 5% for withdrawals exceeding ₹ 1 crore if the person withdrawing the cash has not filed ITR for any of the preceding three AYs. Please read –
https://www.incometax.gov.in/iec/foportal/help/tds-on-cash-withdrawal-us-194n-faq