Q.1129 Accepting cash from

buyer as deposit for property

sale in India

Question: Dear Sir/Madam, I should be grateful for some information/advice please on the following issue. I searched your document but failed to find an answer specific to this issue. I, along with my brother, am in the process of selling some inherited agricultural land in India. We have a perspective buyer and he wants to pay some money up front by way of cash payment in hand, ie without having to go via the bank, and the remainder by bank transfer when the registration process is completed. I want to transfer the funds abroad and, ideally would like to deposit this up-front payment into the bank and proceed via legal channels. If I go down this route where do I stand with respect to income tax etc. Would I have to declare where the up-front cash came from, ie name the source other than just from the sale of the inherited property? Also how helpful would a chartered accountant be in India? I don’t know of any but would need to find someone. Many thanks and best wishes, Answer: Money paid upfront in India when finalizing property sale is commonly known as token money. The purpose being that the seller is committed to the sale pending registration and final payment of the full sale proceeds. Full payment of agreed upon sale amount and registration [transfer of ownership] takes place at the same time. Payment is made and the seller signs the registration documents. The practice of giving/accepting cash as token money for a property sale transaction has been around for decades. However, things are changing now and sellers should avoid taking any sort of cash payment when selling property. This is true especially for NRIs who will at some point want to repatriate the sale proceeds to their home countries. Generally buyers of property in India pay cash deposits because they do not want the cash amount to reflect in the final sale price during registration. In such situations: • the money paid to the seller cannot be accounted for • no tax is paid on this money • Seller may not be able to deposit more that Rs. 50,000 in his/her bank account • Unaccounted money cannot be transferred abroad from India. Those who have purchased my book The NRI Guide should read ‘Turning legal money into illegal money!” on page 181 of the book. NRIs selling property in India should insist on accepting deposits for sale of property through banking channels and ensure that the final transfer of property documents [property sale document] clearly specifies deposit paid and balance due on transfer of ownership] Regards to how helpful a chartered accountant would be in India? That would depend on the person you hire. Regulatory/disciplinary bodies for professionals in India are not as effective as western standards. Many people have not heard of Errors & Omissions insurance or Professional Liability insurance and court process to get results are slow and often take years to get a decision. Do some research before selecting any type of professional help in India. If you can indeed find an ethical lawyer or accountant in India to help, they can make things a lot easier.