Buying/Selling Your Property in Cash? Know Legal Obligations!
Is It Legal to Buy or Sell Property in Cash? Know legal obligations!
Indians are fanatic about using cash. Even with the digital payment system, a large section of our society still uses cash for payments. However, paying cash for smaller transactions is legal and has no restrictions.
But what about big transactions like real estate? Does Indian law allow you to get involved in a real estate transaction with cash – if yes, how much? Are there any restrictions? What are the rules and regulations regarding it?
Today, in this blog, we will delve into all the rules and regulations of the Indian Income Tax Act regarding cash transactions in real estate, including restrictions, penalties for the purchase of property in cash, capped values, etc.
Restrictions on cash transactions under the Indian Income Tax Act
Under Section 269ST – a person cannot receive cash more than 2 lakh in a day from a single individual, entity, organisation, or source. The section is binding on the receiver, not the sender. The receiver has to ensure that he/she doesn’t accept such transactions or will face a 100 percent penalty equal to the amount paid.
The restriction follows as:
Cash receipt limit: 2,00,000
A person cannot receive 2 lakh or more:
• In aggregate from a person in a day
• In respect of a single transaction
• In respect of transactions related to one event/occasion from a person
Cash Receipt Limit – 2,00,000 (Section 269ST)
Section 269ST says you cannot receive 2 lakh or more in cash in any of the following three ways — even if only one of them is true.
1. In aggregate from a person in a day
This means:
You can’t receive 2,00,000 or more in cash from one person in a single day, even if it’s in multiple payments.
Example:
• Mr. A gives you 1,00,000 in cash at 10 AM.
• Later the same day, he gives you another 1,10,000 in cash at 3 PM.
Even though it’s two payments, the total from one person on the same day = 2,10,000 → Violation.
2. In respect of a single transaction
This means:
You can’t receive 2,00,000 or more in cash for a single deal, even if the payment is split across different dates.
Example:
• You sell a bike for 2,20,000.
Buyer pays:
• 1,00,000 on Monday
• 1,20,000 on Wednesday
Even though payments are on different days, it’s for one transaction (bike sale) → Violation.
3. In respect of transactions related to one event or occasion from a person
You can’t receive 2,00,000 or more in cash from one person towards multiple items or services that are part of one event or occasion (e.g., a wedding, birthday, corporate event, etc.)
Example:
You're a wedding planner:
• You receive 1,00,000 for catering
• 70,000 for photography
• 50,000 for decorations
All payments are from the same client, for one wedding → Total = 2,20,000 in cash → Violation.
Exemptions under Section 269ST
Cash received through these sources is exempted from this restriction:
• Account Payee Cheque
• Account Payee Bank Draft
• Electronic Clearing System (ECS)
Receipts by:
• Government
• Banking Company
• Post Office Savings Bank
• Co-operative Bank
• Transactions covered under Section 269SS
• Other persons notified by the Central Government
Penalty – Section 271DA
Penalty for violation: Equal to the amount received in cash.
So as per this section, you cannot accept payments for sale of property or services (like rent or brokerage) of more than 2 lakh from the same person, same product, or same event. Even if the transaction is done on multiple dates, it will be assumed to be a violation.
Other Related Sections: 269SS, 269T, 40A(3), and 43
Section 269SS – Accepting Loan/Advance in Cash (Limit 20,000)
You can’t accept more than 20,000 as a loan, deposit, or advance for buying/selling property.
Example:
• A buyer gives you 25,000 in cash as advance for booking a flat — Violation.
• Accept advance through bank modes only.
• Penalty = Same as amount accepted
• This section helps prevent illegal cash circulation in property deals.
Section 269T – Refunding Advance in Cash (Limit 20,000)
You can’t repay more than 20,000 in cash for any advance or loan — including when a property deal is cancelled.
Example:
• You return 30,000 in cash to a buyer who cancels the deal — Violation.
• Refund the amount via cheque or bank transfer.
• Penalty = Same as amount repaid
• This ensures both giving and returning large sums are done digitally.
Section 40A(3) – Cash Payment for Expenses (Limit 10,000)
Suppose you run a real estate business, any payment you make over 10,000 to vendors (suppliers, contractors, etc.) cannot be claimed as a business expenditure.
Example:
• Paying a painter 15,000 — Violation
• Pay via bank.
Section 43 – Buying Property in Cash (Asset Purchase Limit 10,000)
If you are buying a property as a business asset (resale or rental), then you cannot pay more than 10,000 in cash for the transaction, because the amount then won’t be counted in the property’s cost and it will affect the depreciation value while filing ITR.
Example:
You buy land for 5 lakh and pay 50,000 in cash — this 50,000 won’t be counted when calculating depreciation or gain.
• Pay via bank for tax benefits.
Penalty for Purchase of Property in Cash
If you receive over 2,00,000 in cash (Section 269ST), or accept an advance/loan over 20,000 in cash (Section 269SS), or repay such advance/loan in cash (Section 269T), you’ll face a penalty equal to the amount received or repaid.
Example:
Receiving 3 lakh in cash for a flat sale can lead to a 3 lakh penalty. If you make business payments over 10,000 in cash (Section 40A(3)), that amount disallowed as an expense, increasing your taxable income.
Under Section 43, cash payments over 10,000 won’t count toward asset value for depreciation.
Best Way to Comply with All These Legal Obligations
If you don’t want the government to penalize you and don’t want to lose your hard-earned money, you should always opt for banking channels. Methods like demand draft (DD), cheques, National Electronic Funds Transfer (NEFT), Real-Time Gross Settlement (RTGS), or UPI are the best ways to get involved in such transactions.
Also, keep all the receipts — in case of a cash transaction, for further clarification if disputes arise. If you don’t comply with these rules and regulations under the ITA, you will end up losing 100 percent of your money as a penalty, along with various other penalties as mentioned above.
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