Cash Payment from Capital Gains

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

20 December 2010 Is it legal to make cash payments (above 5 lacs) as advance for booking a flat. The amount will be from Capital Gains obtained from sale of another flat. The amount shall be mentioned in the agreement made with seller (as Cash receipt) and seller is also ready to give a receipt on a Rs.2/- bond.

Please enlighten on the legal and tax aspects of the same.

Is it ok, if I pay taxes for the payment I make in cash?

Querist : Anonymous

Querist : Anonymous (Querist)

21 December 2010 Experts, please help

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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18 July 2024 In India, making cash payments above a certain threshold, especially for property transactions, is regulated by law to curb black money transactions. Here are the legal and tax aspects related to making cash payments from capital gains for booking a flat:

### Legal Aspects:

1. **Income Tax Act, 1961:**
- As per Section 269ST of the Income Tax Act, 1961, no person is allowed to receive an amount of Rs. 2 lakhs or more in cash:
- In aggregate from a person in a day; or
- In respect of a single transaction; or
- In respect of transactions relating to one event or occasion from a person.

2. **Real Estate (Regulation and Development) Act, 2016 (RERA):**
- RERA mandates transparency and discourages cash transactions in the real estate sector to prevent black money and ensure accountability. Developers are required to disclose all transactions, including the receipt of advances.

3. **Stamp Duty and Registration:**
- Payments made towards property transactions must comply with the stamp duty and registration laws of the respective state. These laws typically require payments to be made through banking channels to facilitate proper documentation and legal title transfer.

### Tax Aspects:

1. **Capital Gains Tax:**
- Capital gains arising from the sale of property are taxable under the Income Tax Act.
- If you are using capital gains to make payments, ensure that the gains are properly calculated and taxes are paid on them. Long-term capital gains (if the property was held for more than 2 years) are taxed at a lower rate than short-term capital gains.
- The tax on capital gains should be paid as per the due date of filing income tax returns.

2. **TDS (Tax Deducted at Source):**
- If the seller is a resident and the property value exceeds Rs. 50 lakhs, you may be required to deduct TDS at the rate of 1% under Section 194-IA of the Income Tax Act at the time of making the payment.

### Practical Steps:

1. **Bank Transactions:**
- It is advisable to make payments through banking channels (cheque, demand draft, online transfer) to ensure transparency and compliance with legal requirements.
- Payments made in cash may lead to complications in future legal proceedings or audits.

2. **Agreement and Receipts:**
- Ensure that the agreement with the seller clearly mentions the mode of payment (cheque or online transfer) for transparency and compliance with RERA and other legal requirements.
- Receipts for payments made should also be in compliance with the law, preferably on non-judicial stamp paper.

### Conclusion:

While it may be convenient to make cash payments, especially when dealing with capital gains, it is important to adhere to legal and tax regulations to avoid penalties and legal issues. Opting for banking channels ensures transparency and compliance with the Income Tax Act and other relevant laws governing property transactions in India. Always consult with a qualified tax advisor or legal expert for specific advice tailored to your situation.

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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