Cash demands by sellers, builders, or brokers are still common in Indian property transactions — especially in Tier-2 cities, resale property, and old building stock.
NRIs are often pressured into a "two-cheque" arrangement (part of consideration in cheque, part in cash). This is one of the most dangerous traps an NRI can walk into — it triggers Income Tax penalties up to 100% of the cash amount, FEMA violations for the NRI, and creates a permanent documentation gap that surfaces at sale time.
This guide explains the law and how to refuse cleanly.
What are the cash transaction limits in property deals under Indian law?
Two key Income Tax sections apply:
(1) Section 269SS — prohibits accepting any loan, deposit, or specified sum (which includes advance/earnest money for immovable property) of Rs 20,000 or more in cash. Penalty under Section 271D is 100% of the amount accepted.
(2) Section 269ST — prohibits receiving Rs 2 lakhs or more in cash from a single person, in a single day, OR in respect of a single transaction, OR in respect of transactions relating to one event.
Penalty under Section 271DA is 100% of the cash received. Both sections apply equally to NRIs and residents, sellers and buyers, primary and resale property. The PENALTY is on the recipient of the cash, but the giver also faces problems (no proof of payment, FEMA issues, and the giver may be questioned in any subsequent investigation).
What is the "two-cheque" or "cash component" arrangement and why is it illegal?
This is a tax evasion arrangement where the seller asks for the consideration to be paid partly through banking channel (cheque/RTGS) registered in the Sale Deed at the lower amount, and partly in cash off-the-record.
The seller saves capital gains tax on the cash component; the buyer pays a lower stamp duty on the registered amount.
It is illegal because:
(1) The Sale Deed is a false statement — the actual consideration is misrepresented, attracting Section 271(1)(c) penalty for under-reporting.
(2) The cash component violates Section 269ST — penalty 100% of cash.
(3) Stamp duty is evaded — separate penalty under Stamp Act, usually 10x the deficit.
(4) For NRI buyers, the cash component creates a FEMA issue (funds not from banking channel).
(5) The Income Tax Department uses Annual Information Return data, registry records, and circle rates to detect such arrangements — assessments are routinely reopened.
How does the "circle rate" or "stamp duty value" affect cash transactions?
Each city has government-notified circle rates (also called "ready reckoner rates" in Maharashtra, "guidance value" in Karnataka, "stamp duty value" generally) — minimum values at which property must be registered for stamp duty purposes. Section 50C of the Income Tax Act says: if a property is registered at less than circle rate, the SELLER's capital gains are computed using the circle rate (treating undervaluation as deemed sale value). Section 56(2)(x) says: if a buyer pays less than circle rate by more than Rs 50,000 or 10%, the difference is treated as INCOME of the buyer. So cash arrangements (where registered price is below circle rate) automatically trigger tax on both buyer and seller. NRIs should always register at actual price OR circle rate, whichever is higher.
What if the seller insists on cash component — what should the NRI do?
NRIs should walk away. The risks are entirely on the NRI, while the apparent saving (often presented as "we'll pass on stamp duty saving to you") is illusory.
If the property is otherwise compelling and you cannot avoid the seller's pressure:
(1) Negotiate hard for the entire amount through banking channels — many sellers will reluctantly agree if the buyer is firm. (2) Refuse to pay any cash — even Rs 50,000 in cash creates a 271DA penalty risk.
(3) Get the entire consideration into the Sale Deed at actual price.
(4) Pay full stamp duty on actual price (not on understated price).
(5) If the seller still insists, walk away — there are always other properties.
(6) Report aggressive cash demand to the Income Tax Investigation Wing if the amount is large — they often act on tips.
Can an NRI pay token money in cash to "block" a property?
Token money / earnest money for property is governed by Section 269SS — must be Rs 20,000 or less in cash. Best practice for NRI buyers:
(1) Pay token money via RTGS, NEFT, or cheque from your NRE/NRO account directly to the seller's account.
(2) If the NRI is in India temporarily and needs to give immediate token, write a cheque on the NRE/NRO account (not cash). (3) Get a written receipt from the seller acknowledging the token amount, the property address, and the agreed total consideration.
(4) Token amount should typically not exceed 1-2% of total consideration — beyond that, ask for a written Agreement to Sell to be executed simultaneously.
(5) Make sure the receipt clearly states whether the token is forfeitable (it usually is) and the timeline for completion.
Are stamp duty and registration charges payable in cash?
No, stamp duty and registration fees CANNOT be paid in cash beyond Rs 20,000 (Section 269SS applies). All states now have e-stamping (e.g., SHCIL e-stamps in most states, GRAS in Maharashtra, K2 in Karnataka, Telangana RegistrationCard) — payment must be online via net banking, debit card, demand draft, or NEFT.
Registration fees are paid online to the state revenue department through the registration portal.
NRIs can pay all these from their NRE/NRO account or directly via international card payment to the state portal.
This is one area where there is no scope for cash workaround — the system enforces banking channel payment.
What about cash payments to brokers, lawyers, or facilitation agents?
Professional fees to brokers, lawyers, and consultants are NOT subject to Section 269ST when paid for legitimate services — the section applies to "transactions relating to immovable property" but is interpreted to mean the property consideration itself, not service fees.
However, GOOD PRACTICE for NRIs:
(1) Pay all professional fees through banking channels (NEFT/RTGS).
(2) Insist on GST invoices for fees above Rs 20 lakh (broker turnover threshold).
(3) Avoid cash payments above Rs 35,000 to brokers/lawyers — at this level, Section 40A(3) may disallow the deduction in your computation.
(4) Brokerage commissions over Rs 30,000 attract TDS at 5% under Section 194H if you are required to deduct (typically not for individual NRI buyers).
Always get a written engagement letter with the lawyer/broker specifying scope and fees.
What if the NRI bought property earlier with a cash component — what to do now?
Past cash transactions create exposure on three fronts:
(1) Income Tax — if discovered in scrutiny or reopening (within 4-10 years depending on amount), penalty 100% of cash plus interest.
(2) FEMA — if the cash was provided by NRI to seller, source-of-funds gap.
(3) Future sale — when you sell, the cost basis declared will need to match the registered Sale Deed amount; if you "remembered" higher cost, no documentary support.
Remediation options:
(1) Disclose voluntarily through Income Tax Settlement Commission (now closed — currently the option is updated return under Section 139(8A) which allows disclosure with additional tax).
(2) Pay capital gains on actual gain (registered price as cost basis) on future sale and accept the lower cost basis — clean approach.
(3) For FEMA, if the cash was paid to the seller from NRI's foreign-source funds physically brought in (e.g., currency notes), consider compounding application. Engage a tax practitioner for case-specific advice.
For complete details on selling property in India as an NRI and understanding the complete legal, tax, and repatriation process, visit our Selling Property in India page.