Still considering cash in a property deal? Here’s everything you must know

Introduction:
Despite growing digitization, cash still plays a role in many real estate transactions across India — especially when it comes to token advances, registry undervaluation, or informal settlements. But with strict income tax laws, high scrutiny, and the Benami Property Act, mishandling cash can lead to heavy penalties or worse.

This guide will walk you through:

Legal rules around cash in property deals

Common (but risky) ways people arrange cash

Consequences of illegal cash

Smart alternatives to keep your deal clean and compliant

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Part 1: Legal Rules for Cash in Property Transactions

1. Cash Advance > ₹20,000 is Illegal

Under Section 269SS of the Income Tax Act:

You cannot accept or repay any advance/loan/deposit related to a property in cash if it exceeds ₹20,000

Applies even to token money or EMD (earnest money)

2. ₹2 Lakh Cash Cap per Person

Section 269ST prohibits accepting ₹2 lakh or more in cash:

In a single day

In relation to a single transaction

Or from one person in aggregate

> Violation = Penalty equal to the amount received

3. PAN is Mandatory Above ₹10 Lakh

For any property purchase above ₹10 lakh, PAN must be quoted by both buyer and seller in the sale deed

4. Registrar Reports High-Value Deals

If the property value > ₹30 lakh, it is reported to the Income Tax Department under AIR (Annual Information Return)

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Part 2: How People Commonly Arrange Cash — and the Hidden Dangers

While not recommended, it’s important to know how people try to manage cash components informally:

1. Small Daily Withdrawals

People withdraw ₹1–2 lakh/day to stockpile cash

But if annual withdrawals exceed ₹20L, your bank reports it to the IT Department

2. Cash from Business or Undisclosed Income

Using business cash (especially in retail, construction, etc.)

Risks: Undisclosed income, Section 68, IT raids, and prosecution

3. Chit Funds or Loans from Friends

Raising informal cash from known circles

Illegal if cash amount > ₹20,000, even from friends

4. Registry Undervaluation + Cash Gap

Showing lower value in sale deed (e.g. ₹60L) and giving balance in cash (e.g. ₹20L)

Risk: Stamp valuation mismatch, Benami angle, and capital gains discrepancy

5. Using Relatives’ Names or Benami Setups

Transferring cash to a proxy buyer to “clean” the deal

Extremely risky under Benami Property Act (seizure + 7 years jail)

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Part 3: Safer & Smarter Ways to Handle Real Estate Money

1. Use Banking Channels Only

NEFT/RTGS, cheque, or UPI

Even token money should be digital

Avoid ATM cash withdrawals for property payments

2. Gift Deeds for Family Transfers

If transferring money within family, document it via a registered gift deed

Clearly mention PAN, relationship, and purpose

3. Maintain Paper Trail

Keep screenshots, bank statements, and WhatsApp/email confirmations

Crucial for defending source of funds during scrutiny or property resell

4. Use Home Loans for Larger Transparency

If you’re buying through a home loan, the deal automatically gets vetted

Adds transparency and limits cash involvement

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Conclusion:

Cash in real estate is no longer a grey area — it’s a red flag. With stricter rules, tech-driven audits, and Benami law in place, even one wrong cash move can trigger scrutiny, penalty, or legal trouble.

Play it clean. If you’re the buyer or seller, insist on digital payments, document everything, and file the correct values in your ITR.