House property
This query is : Resolved
19 July 2013
Hi Expert
I have finalised a house property (Flat)worth 45 lacs. The builder has asked me to show it for 30 lacs for the purpose of registeration and as payment he has told me pay 15 lacs in cash and remaining 30 lacs through Cheque.
What will be implication if i follow the above payment.
Further i would be taking a loan for 25 lacs.
Please suggest the best approach that should be followed.
Thanks.
I have finalised a house property (Flat)worth 45 lacs. The builder has asked me to show it for 30 lacs for the purpose of registeration and as payment he has told me pay 15 lacs in cash and remaining 30 lacs through Cheque.
What will be implication if i follow the above payment.
Further i would be taking a loan for 25 lacs.
Please suggest the best approach that should be followed.
Thanks.
19 July 2013
DEAR SIR
IF YOU WANT TO TAKE LOAN FOR PURCHASES OF PROPERTY THEN ON REGISTRATION ON RS. 30 LACS
BANK WILL FINANCE 80% OF REGISTRATION VALUE
AND YOU HAVE REMAINING AMOUNT IN WHITE
THEN YOU HAVE TO PLAN FOR REPLY FOR WHERE YOU USE THAT MONEY ( PAID BY YOU IN CASH)
IF YOU WANT TO TAKE LOAN FOR PURCHASES OF PROPERTY THEN ON REGISTRATION ON RS. 30 LACS
BANK WILL FINANCE 80% OF REGISTRATION VALUE
AND YOU HAVE REMAINING AMOUNT IN WHITE
THEN YOU HAVE TO PLAN FOR REPLY FOR WHERE YOU USE THAT MONEY ( PAID BY YOU IN CASH)
20 July 2013
Thanks for your reply Rupesh.
Yes the remaining amount to be paid in cash is obtained out of sale proceeds of another flat being sold.
I may not be able to get the exemption for Capital gains tax on that but the builder has said that he will reduce the value of flat by 1 lac to cover for my tax payment on captial gain.
Can you please suggest me the best procedure to be followed.
Yes the remaining amount to be paid in cash is obtained out of sale proceeds of another flat being sold.
I may not be able to get the exemption for Capital gains tax on that but the builder has said that he will reduce the value of flat by 1 lac to cover for my tax payment on captial gain.
Can you please suggest me the best procedure to be followed.
28 July 2024
Engaging in transactions that involve substantial cash payments and undervaluation of property can have serious legal and tax implications. Here’s a detailed breakdown of the potential issues and suggested best practices:
### **1. Implications of Cash Payments and Undervaluation**
1. **Legal Implications:**
- **Cash Payments Above ₹2 Lakh:** According to the Income Tax Act, payments exceeding ₹2 lakh in cash are prohibited for property transactions. Paying ₹15 lakh in cash is illegal and can lead to scrutiny and penalties from the tax authorities.
- **Undervaluation of Property:** Showing a lower value for registration purposes than the actual sale price can be considered a violation of tax laws. This can lead to penalties and additional taxes if discovered.
2. **Tax Implications:**
- **Capital Gains Tax:** If you sell a property and do not reinvest the proceeds in a new property within the prescribed time limit, you may not be eligible for capital gains exemption. You will need to pay capital gains tax on the sale.
- **Additional Tax Liabilities:** If the actual transaction value is not reported correctly, the tax authorities may question the transaction and impose penalties.
### **2. Best Practices and Procedures**
1. **Follow Legal Payment Methods:**
- **Avoid Cash Transactions:** Make all payments through bank transactions to ensure transparency. This includes payments for the purchase of the property as well as loan repayments.
- **Cheques and Bank Transfers:** Use cheques, electronic transfers, or other traceable methods for payments. This ensures that all transactions are documented and can be verified.
2. **Property Valuation and Registration:**
- **Accurate Valuation:** Ensure that the property valuation shown in the registration documents reflects the actual transaction value. This avoids legal complications and aligns with the real sale price.
- **Documentation:** Keep all documents related to the purchase, including the sale deed, loan documents, and payment receipts.
3. **Handling Capital Gains:**
- **Reinvestment of Proceeds:** If you’re selling an old property and buying a new one, make sure to reinvest the capital gains in the new property within the prescribed time limit to claim exemptions under Section 54 or 54F.
- **Consult a Tax Advisor:** Given that you may not be able to claim the capital gains exemption due to non-reinvestment, consult with a tax advisor to understand your tax liabilities and plan accordingly.
4. **Loan Disbursement:**
- **Transparency:** Ensure that the loan amount you’re taking is fully documented and disbursed through proper channels. The loan agreement and bank disbursement should be in line with the purchase transaction.
5. **Avoid Undervaluation:**
- **Legal Compliance:** Ensure that the purchase price stated in the registration documents is the same as the actual sale price. Undervaluation can lead to issues with tax authorities.
### **Steps to Follow:**
1. **Consult a Tax Advisor or Legal Expert:** Before proceeding with any transactions, consult with a tax advisor or legal expert to understand the implications and get guidance on how to proceed correctly.
2. **Document Transactions Properly:** Ensure that all transactions are properly documented and follow legal requirements to avoid future complications.
3. **Pay Taxes Due:** If you are unable to claim capital gains exemptions, be prepared to pay the capital gains tax as per the regulations.
4. **Maintain Transparency:** Ensure that all aspects of the transaction are transparent and follow legal procedures to avoid penalties and legal issues.
By following these best practices and adhering to legal requirements, you can ensure that your property transaction is compliant with tax laws and avoids potential legal issues.
### **1. Implications of Cash Payments and Undervaluation**
1. **Legal Implications:**
- **Cash Payments Above ₹2 Lakh:** According to the Income Tax Act, payments exceeding ₹2 lakh in cash are prohibited for property transactions. Paying ₹15 lakh in cash is illegal and can lead to scrutiny and penalties from the tax authorities.
- **Undervaluation of Property:** Showing a lower value for registration purposes than the actual sale price can be considered a violation of tax laws. This can lead to penalties and additional taxes if discovered.
2. **Tax Implications:**
- **Capital Gains Tax:** If you sell a property and do not reinvest the proceeds in a new property within the prescribed time limit, you may not be eligible for capital gains exemption. You will need to pay capital gains tax on the sale.
- **Additional Tax Liabilities:** If the actual transaction value is not reported correctly, the tax authorities may question the transaction and impose penalties.
### **2. Best Practices and Procedures**
1. **Follow Legal Payment Methods:**
- **Avoid Cash Transactions:** Make all payments through bank transactions to ensure transparency. This includes payments for the purchase of the property as well as loan repayments.
- **Cheques and Bank Transfers:** Use cheques, electronic transfers, or other traceable methods for payments. This ensures that all transactions are documented and can be verified.
2. **Property Valuation and Registration:**
- **Accurate Valuation:** Ensure that the property valuation shown in the registration documents reflects the actual transaction value. This avoids legal complications and aligns with the real sale price.
- **Documentation:** Keep all documents related to the purchase, including the sale deed, loan documents, and payment receipts.
3. **Handling Capital Gains:**
- **Reinvestment of Proceeds:** If you’re selling an old property and buying a new one, make sure to reinvest the capital gains in the new property within the prescribed time limit to claim exemptions under Section 54 or 54F.
- **Consult a Tax Advisor:** Given that you may not be able to claim the capital gains exemption due to non-reinvestment, consult with a tax advisor to understand your tax liabilities and plan accordingly.
4. **Loan Disbursement:**
- **Transparency:** Ensure that the loan amount you’re taking is fully documented and disbursed through proper channels. The loan agreement and bank disbursement should be in line with the purchase transaction.
5. **Avoid Undervaluation:**
- **Legal Compliance:** Ensure that the purchase price stated in the registration documents is the same as the actual sale price. Undervaluation can lead to issues with tax authorities.
### **Steps to Follow:**
1. **Consult a Tax Advisor or Legal Expert:** Before proceeding with any transactions, consult with a tax advisor or legal expert to understand the implications and get guidance on how to proceed correctly.
2. **Document Transactions Properly:** Ensure that all transactions are properly documented and follow legal requirements to avoid future complications.
3. **Pay Taxes Due:** If you are unable to claim capital gains exemptions, be prepared to pay the capital gains tax as per the regulations.
4. **Maintain Transparency:** Ensure that all aspects of the transaction are transparent and follow legal procedures to avoid penalties and legal issues.
By following these best practices and adhering to legal requirements, you can ensure that your property transaction is compliant with tax laws and avoids potential legal issues.
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