On-money receipts

"On-money" is an informal term commonly used in India—particularly in the real estate sector—to describe unaccounted cash payments made over and above the officially recorded sale consideration (the price mentioned in the sale deed).

Key Characteristics of "On-Money"

• Unaccounted Income: Because this money is paid in cash and not disclosed in legal documents, it does not enter the formal banking system. This is often done to evade stamp duty, registration charges, and income tax (capital gains tax for the seller).

• The "Black Money" Aspect: Since it is "off the books," it is considered black money. Sellers may demand on-money to reduce their reported profit and avoid paying taxes on the full market value of the property.

• Illegal Nature: Engaging in on-money transactions is illegal under the Income Tax Act and other financial regulations. It carries significant risks for both the buyer and the seller.

Legal Risks and Implications

1. Tax Penalties: If the Income Tax Department discovers such transactions, the parties involved face heavy penalties. Under Section 269ST, receiving cash of ₹2 lakh or more from a single person in a day (or for a single transaction/event) is prohibited. Violating this can lead to a penalty equal to 100% of the cash amount received.

2. Valuation Mismatches: Tax authorities use the Stamp Duty Value (circle rate) as a benchmark. If a property is sold for an officially recorded price lower than the stamp duty value, provisions like Section 50C or Section 56(2)(x) of the Income Tax Act may be invoked to tax both the buyer and seller on the "notional" income (the difference between the market value and the transaction price).

3. Lack of Legal Recourse: Because on-money is not documented in the registered sale deed, the buyer has no legal proof of payment. If the seller backs out or demands more money, the buyer cannot claim the "on-money" portion in a court of law.

4. Audit and Scrutiny: With increased digitization and the integration of the Income Tax Department's portal with property registration data, large cash transactions are much easier to track. Discrepancies between one's lifestyle/investments and reported income often lead to tax scrutiny.

Summary

"On-money" refers to hidden cash payments used to bypass official taxes and regulations. It is a form of black money transaction that poses severe legal and financial risks to all parties involved, including heavy penalties and potential tax litigation.