07 November 2013
Mr X has purchased a property in cash. he has not registered the property although has got power of attorney in his name. Now he is selling this property and will receive payment in cheque.
QUERIES:
1)Is purchase of property wholly in cash valid as per IT dept? 2)if he shows that he has purchased the property in cash and validates the same through agreement and receives sale consideration by way of cheque and pays the cap gain tax, will there be any problem in future? 3)If Mr X receives whole amt in cash on selling the property and does not account it in his books and do not show it in return, will there be chances of capture if transaction by IT dept?
10 August 2024
Here’s a detailed explanation addressing your queries about purchasing and selling property with cash transactions:
### **1. Validity of Purchasing Property Wholly in Cash**
**a. **Income Tax Act, 1961:** - **Section 269SS:** According to Section 269SS of the Income Tax Act, 1961, no person should accept an amount of ₹20,000 or more in cash for the purchase of property. The amount should be paid through banking channels or other prescribed modes. Therefore, purchasing property wholly in cash is not compliant with this provision. - **Penalties:** If it is found that the property was purchased entirely in cash, penalties under Section 271D of the Income Tax Act may be imposed. The penalty can be up to the amount of cash received, and the transaction can be scrutinized for tax evasion.
**b. **Legal Validity:** - **Registration Requirements:** The property must be registered under the Registration Act, 1908, to transfer legal ownership. Power of Attorney (PoA) does not confer legal ownership; it merely authorizes someone to act on behalf of the owner.
### **2. Selling the Property and Tax Implications**
**a. **Sale of Property and Capital Gains Tax:** - **Reporting Sale:** If Mr. X sells the property and receives payment via cheque, he should report the sale and pay capital gains tax as per the Income Tax Act. The capital gains will be calculated based on the difference between the sale price and the purchase price. - **Validating Purchase:** Even if the purchase was made in cash, showing the transaction through an agreement and proper documentation is crucial. Proper accounting and tax payment on capital gains can mitigate some risks, but the initial cash purchase may still pose problems.
**b. **Future Issues:** - **Tax Scrutiny:** The initial cash transaction might be questioned during tax scrutiny or audits, even if the sale is reported correctly and tax is paid on capital gains. It is important to maintain accurate records and be prepared for any queries from tax authorities.
### **3. Receiving Cash on Sale and Non-Reporting**
**a. **Non-Reporting of Cash Transactions:** - **Income Tax Act Compliance:** If Mr. X receives the entire amount in cash from the sale and does not account for it in his books or tax returns, it constitutes a serious violation of tax laws. - **Penalties and Prosecution:** Non-reporting of cash transactions and failure to disclose income can lead to severe penalties under the Income Tax Act, including prosecution. The Income Tax Department has mechanisms to track large cash transactions, and non-compliance can result in detection and legal action.
**b. **Detection by IT Department:** - **Cash Transactions:** The Income Tax Department has tools and measures to detect large cash transactions, especially when they involve high-value properties. Such transactions are scrutinized to prevent tax evasion and money laundering. - **Possible Actions:** If detected, Mr. X may face penalties, interest on unpaid taxes, and legal proceedings. It is crucial to ensure all transactions are reported accurately and comply with tax regulations.
### **Recommendations**
1. **Document Transactions:** Ensure all transactions are well-documented and comply with legal and tax regulations. Use banking channels for transactions wherever possible. 2. **Consult Professionals:** Seek advice from tax professionals or legal experts to handle the situation properly and address any potential issues. 3. **Compliance:** Maintain transparency in reporting and filing tax returns to avoid future complications with the Income Tax Department.
By adhering to these practices, Mr. X can mitigate risks and ensure compliance with legal and tax requirements.
CAclubindia
