Income Tax dept. to question cash transactions in real estate deals

Parties involved in real estate transactions in excess of Rs 20,000 will be questioned by the IT dept. for flouting Sec. 269SS of the IT Act

Income Tax dept. to question cash transactions in real estate deals

The Central Board of Direct Taxes (CBDT) has formulated a law within the Income Tax (IT) Act, which requires that any transaction in real estate, including agricultural land, over Rs 20,000, can be made only through an account payee cheque, real-time gross settlement (RTGS), or electronic transfer. In other words, it has barred cash transactions above that amount with retrospective effect from 1st June 2015. 

The IT department’s Delhi division has scanned property transactions in all 21 sub-registrar offices of Delhi to look at registries above the Rs 20,000 amount – since the passing of the law till date. It must be noted that the aforementioned law falls under Section 269SS of the IT Act and was designed to curb the parking of black money through the sale and purchase of immovable properties. 

Related:  Property Tax: When Does It Apply To You? 

Breaching this section attracts Section 271D, which requires that if any cash transaction is made beyond the defined limit, a penalty of an equal amount is imposed on the seller who accepts cash or refunds cash advances.

Accordingly, the Delhi division of the IT department is planning to send notices to all parties who have made such cash dealings in real estate during 2015-2018. One can expect other divisions of the department to follow suit. Apart from imposing a penalty on the seller, the purchaser will have to validate the source of the money. 

What is Section 269SS and 271D of the IT Act?

Section 269SS of the IT Act restricts acceptance, payment and repayment of cash over the defined limit. It prohibits taxpayers from accepting loans, deposits, and sums over and above Rs 20,000. It further specifies that all such transactions should be done through a proper banking channel, which could be RTGS, online transfer, or account payee cheque. 

Section 271D imposes a penalty of an equal amount of the loan, deposit, or sum accepted if it is above the specified limit.

Related: How to minimise the effect of taxation on long-term capital gains 

When is Section 269SS not applicable?

This section is not applicable in case of transactions with the government, banking companies, post office savings bank or cooperative banks, government corporations or companies, or government-notified institutions, associations, or bodies. Besides, cash transactions over Rs 20,000 are also allowed between two people with agricultural income and no taxable income under the IT Act. 

Related: Real Estate deals by non-residents under the tax net 

How is black money used in real estate?

People tend to pay a portion of the property value in cheque and the remaining in cash, thus deflating the official value of the property. For example, for a property worth Rs 8 crore, the buyer might pay only Rs 3 crore in cheque and the remaining in cash. Generally, the parties keep the circle rate of the property in mind while deciding on the cash/cheque ratio. Thus, the black money is utilised in buying the property.

Real estate is also used to turn black money into white. If, in the above example, the property officially worth Rs 3 crore is let out for an annual rental income of Rs 50 lakhs, the owner can use that income to turn hoarded money into legitimate income.

Related: Confused in Real Estate Investment? Here are 6 myths you can stop worrying about

What is the impact on real estate? 

Curbing cash transactions and demonetisation was expected to hit real estate hard, particularly the premium segment of the industry. It is suspected that most cash transactions are done in properties worth over Rs 3 crore. It must be mentioned that real estate crashed in all eight major cities after demonetisation, with sales falling 44% year-on-year and new launches down by 61%. 

Although limiting cash transactions alone cannot stop the proliferation of black money and its laundering in the real estate industry, such steps by the department are sure to have a positive impact.

Thus, if you are planning to add real estate to your investment portfolio, consider these points that wil help you make a wiser decision. 


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