Paying Cash for a Flat or Plot: What the Tax Law Allows
A flat or plot is usually the largest purchase a family makes, and the temptation to settle part of it in notes is old. The tax law has shut that door for big amounts. This guide lists the limits, shows who is fined, and explains why a Bangalore buyer is wise to keep every payment in the banking system, even though the fine falls on the seller.
The Short Version
Two ceilings govern cash in a property deal. An advance towards land or a building must not be accepted in cash at Rs. 20,000 and above. Separately, nobody may take in cash a total of Rs. 2 Lakhs and above from the same person in a day, for a single transaction, or for a single event.
A third rule closes the loop on refunds. If an advance of Rs. 20,000 and above is given back, for instance after a booking is called off, the return has to move through a bank too.
Names and Numbers of the Provisions
For years these were Sections 269SS (advances), 269ST (receipts) and 269T (refunds). On 1 April 2026 a new Income-tax Act of 2025 took over from the 1961 law, and the same ideas now appear as sections 185, 186 and 188. Developers and banks continue to quote the old numbers in conversation.
The advance rule came into the statute in June 2015, when lawmakers noticed that large booking amounts were being passed around in cash. A token, a booking fee and an earnest deposit are all treated alike, and the rule holds even if the sale falls through.
Why Splitting Does Not Work
Some people think two payments on two days escape the ceiling. They do not, because the receipt rule looks at the day, at the transaction and at the event. Part payments, the closing balance and an informal charge for car parking or interiors all count towards the total.
Modes the Law Accepts
Large amounts should travel by one of the following:
- Account payee cheque or demand draft
- An online transfer through NEFT, RTGS or IMPS
- Mobile or internet banking, UPI, or a card
Amounts paid to the government, to a lender or at the post office are not caught by the receipt ceiling. That is why stamp duty and registration charges, which go to the state, follow a separate online process.
Who Is Fined and By How Much
The receiver of the cash is the one penalised, and the fine is equal to the entire sum received. Take a seller who pockets Rs. 8 Lakhs in notes as an advance: the fine can be Rs. 8 Lakhs. The person who repays an advance in cash is fined in the same way.
A receiver can escape only by establishing reasonable cause. Officers read that phrase tightly, so a payment planned in cash from the start seldom qualifies.
Three Reasons Buyers Should Care
Because the seller takes the fine, buyers sometimes treat cash as harmless. Three consequences say otherwise.
Proof
Bank statements show the amount, the date and the payee. Suppose a title dispute or a refund fight begins later. A cash slip then carries very little weight.
Capital gains
The price in the sale deed becomes the buyer's cost of acquisition. If part of the true price was paid in cash and left out of the deed, the profit on a future sale looks bigger than it is, and so does the tax.
Questions about the source
Sub-registrars inform the Income Tax Department about registrations valued at Rs. 30 Lakhs and above. Cash with no link to declared income can be treated as unexplained money put into the property, and taxed at a steep rate.
The Low-Price Deed Is a Bad Bargain
A request for cash normally comes with an offer to show a smaller price on paper. Karnataka applies stamp duty to the larger of two figures, the government guidance value and the price the parties agreed, so the duty saved is usually small.
There is a trap on the income tax side as well. If the stamp duty value runs over the actual price by more than 10%, the gap may be added to the buyer's income, and the seller's sale value is also lifted to that figure.
Buying From a Developer
Under RERA, every project has its own approved bank account for buyer money. The state's RERA portal tells buyers to pay nowhere else. Notes handed to a sales agent may never arrive there, and a buyer would find it hard to prove the payment if the project were delayed.
Banks lending for a new flat release the loan to the developer in stages. They also want the borrower's own margin moved by transfer and receipted. A cash portion kept off the agreement cannot be funded by a lender and leaves a hole in the loan papers.
Habits That Keep the Deal Clean
These habits keep a purchase tidy from the first token to registration:
- Send every rupee, from the first token to the last instalment, by cheque, draft or transfer
- File each receipt beside its matching bank entry
- For a launch, pay only the account stated in the agreement and shown on the RERA record
- Check that the deed records the full price paid
- Treat any talk of a cash element as a warning sign
- Confirm the new section numbers and any unusual case with a chartered accountant
When the paperwork on a purchase gets complicated, contact us. We can point buyers to lenders and advisers who work on property transactions all the time.
