Whether cash transaction in excess of INR 20,000 is allowed in any loans / advances / real estate transfer

Black money is always threat to any country’s economy. The CBDT has noted that a taxpayer should not be allowed to give false explanation for unaccounted money or if he makes false entries, he must not escape in search. The Board even said that Taxpayers get confirmatory letters from friends and relatives, saying that they have advanced the money to the Taxpayer. Therefore, restriction on cash transaction was of grave concern.

Two important sections are present in the Income Tax Law – Section 269SS and Section 269T, which specifies cash transaction limit as per Income Tax Act and aims to discourage the following transactions that no person (including NRI) shall be:

  • Accepting or taking any loans or advances or any sum of money receivable in relation to transfer of immovable property, if the transaction value is INR 20,000 or more (Section 269SS), unless received through an account payee cheque or draft or other electronic mode of payment through a bank account.
  • Repaying any loans or advances or any sum of money repayable in relation to transfer of immovable property, if the transaction value is INR 20,000 or more (Section 269T)   

Above restriction on cash transaction shall not be applicable for transactions with Government, Banks, Post Office, Co-operative Banks or Government Undertakings and also on cash transaction under 20,000.

The penalty for contravention of above limit for cash transaction (sections 269SS and 269T) is extremely harsh, as the punishment demands that an amount equal to the sum taken or repaid is to be submitted. For example, if the loan taken is INR 20 Lakhs, the penalty is also INR 20 Lakhs. Therefore, Taxpayers must be very careful in reporting transactions under both Sections.

Interesting to note that real estate transactions are now covered under the above restriction. This was noticed by the Kerala High Court in the case of CIT v. A.M. Fazil [2012] 22 taxmann.com 238 (Ker.), wherein the Court observed that " unless prohibition is introduced against cash transactions particularly in sale of property, in film industry and the like at least for payments over a certain limit in cash, black money generation and circulation cannot be controlled because the disincentives on cash dealings contained under the various provisions of the Income-tax Act have failed to achieve the objective."

Accordingly, the Finance Act, 2015 introduced a restriction to prohibit acceptance of cash transaction in excess of INR 20,000, in connection with transfer of immovable property otherwise than by an account payee cheque or account payee bank draft or use of electronic clearing system through a bank account

Considering the restriction on cash transaction in real estate transactions and post demonetization impact, now it become a real challenge for completing a real estate transaction. 

Disclaimer: The views / the analysis contained therein do not constitute a legal opinion and is not intended to be an advice. Readers of this document are advised to seek their own professional advice before taking any course of action or decision, based on this document.

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