Income Tax Vs Immovable property: Cap on cash transactions

The new provisions will not apply to the persons, who have only agricultural income (agriculturist) and who do not have any income chargeable under the Income Tax Act.

Keeping the promise to reduce black money, the union government has brought out amendments to Section 269SS and 269T of IT Act, where immovable property transactions in excess of Rs 20,000, either in land, building or land and building should be routed through banking channels. And if any one who takes or accepts sale consideration in cash, such persons are liable to penalties.

Accordingly, sale of immovable property by way of cash will attract heavy penalties u/s 271D, which is a sum equal to 100 per cent of the amount received towards consideration. This rule applies with effect from June 1, 2015.

At present, the receipt of sale consideration of immovable property could also be in the form of cash.

However, interestingly, the term “Immovable Property” has not been defined under Income-Tax act.

While as per other Acts – Registration Act, 1908, General Clauses Act, 1897 or Transfer of Property Act, 1982 – the term immovable property include Land, building or Land and building.

And more importantly it may include Agricultural Land also, because agricultural land is an immovable property as per transfer of property act.

Thus, the amendment has far reaching implications especially for a country like India, where majority of farmers have no access to banking facilities, as yet.

In fact, from 01st June 2015, all immovable property transactions will come under the Income-Tax department’s radar and it will be easy for them to catch hold of people who are not discharging their tax liability, thereby arresting generation of black money in real estate transactions.

As per the clause 66 of the Finance bill, by amending the Section 269SS of IT Act, a new word “Specified sum” is introduced. It was defined as: any sum of money receivable, whether as advance or otherwise, in relation to transfer of an immovable property, whether or not the transfer materializes.

As per this provision, the Seller of the property should accept the entire sale consideration or advance or any part thereof, through banking channels only.

Here also, any amount received in cash will attract penalty @ 100 per cent of amount accepted or received u/s 271D in the hands of recipient (seller). It is important to note that even the advance amount received shall fall under this category.

Even clause 67 of the bill also seeks to amend Section 269T of IT Act, by incorporating a new word “Specified advance”. Here it is defined as any sum of money received, as an advance or otherwise, in relation to transfer of an immovable property and becomes repayable if the negotiations do not result in transfer of such immovable property.

As per these provisions, in the event of refund of advance for un-successful transaction, the said refund of advance should be through banking channels only and should not be repaid in cash. Any amount repaid in cash will attract penalty @ 100 per cent of amount repaid u/s 271E.

However, these above provisions will not apply to the persons who are having only agricultural income and neither of them has any income chargeable to income-tax.

In other words the said provisions will be applicable to all persons who are having taxable income.

The doubt would be, “by accepting the sale consideration in cash, will the transaction be valid?” The interesting part here is the seller can accept cash, and the transaction will be valid, but he (seller) should pay penalty.

The author is a practicing chartered accountant and can be reached at [email protected] or 9866226797.

TSN Murty