Subject: Urgent Advice Needed - Regarding Partial Cash Payment for Flat Purchase Dear Mr. Samrat Sir, I am writing to seek your urgent advice regarding a potential flat purchase. I am interested in a particular flat, but the owner is requesting a partial payment in cash. Please note that all my funds are held legally in bank accounts, and I have no concerns about the source of my money.i have all white money . However, I am hesitant about making a cash payment, even partially, due to possible legal and tax implications. Therefore, I kindly request your expert guidance on the following: • Legality: Is it legal to make a partial cash payment for a flat purchase in India? Are there any specific limits or regulations regarding cash transactions for property deals? • Tax Implications: Could making a cash payment, even partially, raise any red flags from the tax authorities? What are the potential tax repercussions I should be aware of? • Risks and Alternatives: Are there any other risks associated with making a cash payment, such as the possibility of fraud or disputes? Is it possible to negotiate with the owner for alternative payment methods that are more transparent and avoid cash entirely? I would greatly appreciate it if you could provide your insights and recommendations on how to proceed with this situation in a safe and compliant manner. My primary concern is protecting my financial interests and ensuring a smooth and hassle-free flat purchase. Please feel free to reach out if you require any further information or clarification. I look forward to your prompt response and valuable advice. Thank you for your time and expertise.

Ans: No person shall receive an amount of two lakh rupees or more— (a) in aggregate from a person in a day; or (b) in respect of a single transaction; or (c) in respect of transactions relating to one event or occasion from a person,otherwise than by an account payee cheque or an account payee bank draft or use of electronic clearing system through a bank account or through such other electronic mode as may be prescribed.

Further, cash payment, if any, should be part of sale consideration mentioned in the sale agreement.

Ans: Your decision to extend a loan instead of a gift is prudent. It reduces potential income tax issues for you. Structuring this arrangement through a proper loan agreement ensures legal validity and clarity.

The direct payment to the seller strengthens your case with the tax authorities. It avoids suspicion about unaccounted money being involved in the transaction.

Your friend’s income from side roles in films, though modest, and the absence of tax filings, could raise concerns. This property purchase could attract scrutiny from the Income Tax Department.

Key Considerations for Structuring the Loan
Drafting a Loan Agreement
The loan agreement must clearly outline the terms of interest, tenure, and repayment. Specify the capital repayment timeline of ten years. This document is crucial for tax compliance and transparency.

Payment through Banking Channels
Ensure all transactions are routed through bank accounts. Avoid cash payments at any stage of the process.

Fair Interest Rate
A 6% annual interest rate is reasonable. It avoids being classified as a concessional or interest-free loan. This ensures no deemed gifting complications arise under the Income Tax Act.

Documentation for Proof of Loan
Keep proof of the loan, like bank transaction records, loan agreement, and interest payment receipts. This safeguards both parties from legal complications.

Tax Implications for You
Interest Income
The interest earned at 6% annually is taxable under “Income from Other Sources.” Declare this income in your tax returns every year.

TDS Compliance
Your friend must deduct tax at source (TDS) on the interest paid if applicable. Verify the threshold limits for TDS compliance to avoid issues.

Avoidance of Deemed Gift Issues
Since this is a loan and not a gift, no gift tax liability arises for either party.

Tax Implications for Your Friend
Income Tax Filing Requirement
Your friend’s cash income of Rs. 2.5 lakh annually is below the taxable limit. However, purchasing property valued at Rs. 28 lakh will create an asset in his name. This can draw the attention of tax authorities.

Reporting High-Value Transactions
Property purchases exceeding Rs. 30 lakh must be reported to the tax department. In your friend’s case, though below this limit, the source of Rs. 8 lakh (balance) must be clearly justified.

PAN and Filing of Returns
Encourage your friend to start filing Income Tax Returns. Filing returns enhances financial credibility and avoids scrutiny.

Recommendations for a Smooth Transaction
Source of Funds Verification
Ensure your friend has proper documentation for the Rs. 8 lakh balance payment. This will minimise questions from authorities.

ITR Filing as a Preventive Measure
Advise your friend to file ITR even if his income is below the taxable limit. This helps justify his financial profile in case of scrutiny.

Registering the Property Appropriately
Register the property with accurate details, including the loan arrangement. Keep registration costs and stamp duties in mind.

Monitor Interest Payments Regularly
Track interest payments diligently. Ensure these payments are timely and through proper banking channels.

Final Insights
Your thoughtful approach of structuring this transaction as a loan safeguards both parties. It ensures transparency and compliance with tax laws. Document every step meticulously and keep the financial arrangements clear. Encourage your friend to regularise his tax filings and maintain financial discipline.

Best Regards,

K. Ramalingam, MBA, CFP,

Chief Financial Planner,

www.holisticinvestment.in
https://www.youtube.com/@HolisticInvestment

Ans: Repayment of housing loan will not reduce capital gain tax directly. However, if you want to save tax, you can invest gain amount in another residential property.

Capital gain calculation will depend on contribution given by each of the owner at the time of acquisition of property. If mother doesn't have source of income or old savings, she will not be considered as owner of property. Also brokerage is not allowed as deduction.

Assuming you are 100% owner for income tax purpose and allowable cost is 90L, appx capital gain would be 430000 (assumed 31st March 2025 as date of transfer) on which tax would be 85k plus applicable surcharge cess.

Ans: Hi,

Doing this can be problematic for you. If possible, avoid this deal.
As per your origianl firsr document, there nust be a clause saying if the buyer backs out, he will have to pay some penalty. Get in touch with a lawyer and show that to him. And do not fall into the trap of him paying your taxes. Might sound attractive but will be problematic in future.

Best Regards,
Reetika Sharma, Certified Financial Planner
https://www.instagram.com/cfpreetika/