Paying a Token in Cash for a Flat? Why Anything Above Rs 19,999 Is a Problem
Sellers cannot accept an advance of Rs 20,000 or more in cash for a property deal, even if the sale falls through. The penalty equals the cash taken.
Cash tokens are still common in property deals: "just give Rs 50,000 now to block it". For the seller, accepting that is a tax problem.
The rule
- Since 1 June 2015, a person cannot accept a loan, deposit or "specified sum" of Rs 20,000 or more other than by account payee cheque, bank draft or electronic transfer.
- A "specified sum" is any advance, by whatever name, in relation to the transfer of immovable property, whether or not the transfer happens.
- Repaying such an advance in cash is restricted in the same way.
Token money is still money. Pay it by cheque or transfer, every time.
The penalty
The penalty is equal to the amount accepted or repaid in cash. A Rs 1 lakh cash token can cost the seller Rs 1 lakh.
What buyers and sellers should do
- Pay and accept every token, advance and refund through the bank.
- Record the token in a signed receipt or token agreement that mentions the transfer.
- Keep the stamp duty value in mind too. See selling or buying below the ready reckoner.
- Buying from an NRI? See TDS when buying from an NRI.
On deals we handle, the price and our fee are put in writing before paperwork starts, and every payment goes through the bank.
Frequently asked questions
Can I pay a token amount in cash for a flat?
A seller cannot accept an advance of Rs 20,000 or more in cash in relation to a property transfer. Pay by cheque, draft or bank transfer.
What is the penalty for accepting cash for property?
A penalty equal to the amount accepted in cash.
Sources
- TaxGuru: Real estate transactions and sections 269SS and 269T
- ClearTax: Section 269SS and 269T rules and penalty
This is general information, not legal or tax advice. Rules change, so check your own case with a lawyer or CA.
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Yanik
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