Selling property in India involves large sums of money. Many buyers and sellers often wonder:
“Can I sell my property in cash to avoid taxes or simplify the transaction?”
The short answer is: You can receive cash, but only within strict limits. Exceeding those limits could trigger severe penalties under the Income Tax Act, 1961.
This article explains the rules, consequences, and best practices around cash transactions in real estate, so you don’t land in legal trouble.
Can You Legally Sell a Property in Cash?
Yes, you can accept cash for selling a property, but only up to a certain limit and under very strict guidelines.
As per the Income Tax Act, any cash transaction of ₹2 lakh or more in a single event is not allowed. This is covered under Section 269ST of the Income Tax Act, 1961.
What is Section 269ST of the Income Tax Act?
Section 269ST prohibits any person from receiving an amount of ₹2,00,000 or more:
- In a single transaction, or
- From a single person in a day, or
- In respect of one event or occasion
in cash.
So, if you’re selling a house worth ₹50 lakh, and someone wants to pay ₹20 lakh in cash and ₹30 lakh via bank, it is illegal under this law.
Also Read:
RERA Compliance for Housing Societies
Penalty for Accepting Cash Over ₹2 Lakh
If you violate Section 269ST:
- The entire cash amount received becomes liable to a 100% penalty.
- So, if you received ₹10 lakh in cash, the penalty is also ₹10 lakh.
- This penalty is imposed under Section 271DA of the Income Tax Act.
The buyer and the seller both may come under scrutiny.
Why Are Cash Transactions in Real Estate Regulated?
The government enforces strict rules around cash transactions in real estate to:
- Prevent black money generation
- Track unaccounted income
- Reduce tax evasion
- Promote digital and transparent payments
Since real estate is a high-value sector, it’s often misused for hiding income. Therefore, authorities have tightened compliance norms.
Acceptable Modes of Property Payment
To stay on the right side of the law, always use these acceptable payment modes:
- Cheque (account payee)
- Demand Draft
- NEFT/RTGS/IMPS
- UPI (for smaller amounts)
- Bank transfer
These modes leave a clear money trail and are considered valid proof during property registration and income tax assessment.
Registration Rules and Payment Disclosure
During property registration:
- Both buyer and seller must declare the sale value in the sale deed
- The Sub-Registrar may refuse registration if the declared payment is suspicious
- Stamp duty and circle rates must also be factored in
Paying part in cash and part via bank may raise red flags and attract tax raids.
TDS Applicability on Property Sale
For property sales over ₹50 lakh:
- The buyer must deduct 1% TDS (Tax Deducted at Source) under Section 194-IA
- TDS is deducted on the entire sale amount, not just the bank-transferred portion
- Form 26QB must be filled, and TDS deposited with the government
If a part of the payment is in cash, this TDS compliance becomes difficult, which could trigger income tax scrutiny.
Reporting Property Sales in ITR
If you’re a seller:
- You must report the capital gains (short or long term) in your Income Tax Return (ITR)
- If you received any part of the sale amount in cash, it becomes hard to prove or claim benefits like indexation or Section 54 exemption
- If caught, you may face interest, penalty, and prosecution
Real Case Example
Illegal Transaction:
Mr. A sells his plot for ₹35 lakh.
- Receives ₹10 lakh in cash, ₹25 lakh via bank.
- Does not declare the ₹10 lakh in his ITR.
Consequences:
- Violates Section 269ST
- ₹10 lakh cash is unaccounted → Penalty = ₹10 lakh
- Faces notice and potential raid by IT department
Can You Show Cash as Advance?
Some people try to bypass the rule by taking cash as “advance”.
This is still illegal if the total cash received across the entire transaction exceeds ₹2 lakh. The law considers it part of one single transaction.
How to Legally Sell Property and Minimize Tax?
Here are legal ways to minimize tax without accepting cash:
- Invest capital gains in specified assets (under Section 54, 54F)
- Use joint ownership for tax planning
- Invest in Capital Gains Bonds (Section 54EC)
- Consult a chartered accountant (CA) before the transaction
Table: Cash Transaction Rules for Property in India
| Aspect | Rule/Limit | Legal Section |
|---|---|---|
| Max. Cash Allowed in Sale | ₹1,99,999 | Section 269ST |
| Penalty for Violation | 100% of cash received | Section 271DA |
| TDS Applicability | 1% on sale value > ₹50 lakh | Section 194-IA |
| Report in Income Tax Return | Mandatory for seller | Capital Gains Head |
| Allowed Payment Modes | Cheque, Bank Transfer, DD, UPI | RBI/Income Tax Norms |
Key Takeaways
- You can’t legally sell or buy a property with more than ₹2 lakh in cash.
- Violation of this law may lead to 100% penalty.
- Always use traceable bank channels for real estate payments.
- Declare property sale in your income tax return and deduct TDS if applicable.
- Consult a financial advisor before finalizing high-value deals.
Selling a property in cash might seem convenient, but it can land you in serious legal and financial trouble. With stricter regulations under the Income Tax Act, transparency is the best policy.
If you are planning to sell or buy property, do it legally and smartly.
