Cash Limits When Buying Property: Sections 269SS and 269ST Explained

Indian income tax law sets firm limits on how much cash may change hands in a property deal. This guide explains the two main rules, long known as Sections 269SS and 269ST, and who pays the penalty when they are broken. It also covers why a buyer loses out even when the seller bears the penalty, and how to pay for a home in Bangalore with every rupee on record.

The Two Cash Limits in Brief

Both rules push large payments into the banking system, so that the money in a sale can be traced. They apply to buyers and sellers of flats, plots and houses alike, whether the seller is a builder or an individual owner.

The two limits work as follows:

• Rs. 20,000: a seller or builder may not accept an advance of this much or more in cash for the sale of land or a building (Section 269SS)
• Rs. 2 Lakhs: a person may not receive this much or more in cash from one person in a day, for one transaction, or for one event (Section 269ST)
• Rs. 20,000: a refund of such an advance, for example when a booking is cancelled, must also be paid back through a bank (Section 269T)

The Income-tax Act, 2025 replaced the 1961 Act from 1 April 2026 and gave these rules new section numbers: 185, 186 and 188. Most banks, builders and advisers still refer to them by their old numbers, so this guide uses those.

What Counts as an Advance for Property

The Rs. 20,000 limit covers any sum taken in connection with the transfer of immovable property, whether it is called a token, a booking amount or an earnest deposit. It applies even if the sale never goes through. This rule was added in June 2015 to close the gap that let large property advances move in cash.

The Rs. 2 Lakh limit is wider and catches the rest of the deal. A part payment, the balance at registration, or a separate "cash component" for parking or fittings all fall within it. Splitting one payment across several days does not avoid the rule, because the limit also applies per transaction and per event.

Which Payments Are Allowed

Payments above these limits must move through a bank. The accepted modes are listed below:

• Account payee cheque or account payee demand draft
• Bank transfer through NEFT, RTGS or IMPS
• UPI, net banking, and debit or credit card payments

Payments to the government, a bank or a post office are outside the cash receipt limit. Stamp duty and registration fees are paid to the state, mostly online, so they follow their own process.

Who Pays the Penalty

The penalty falls on the person who receives the cash, and it equals the full amount received. A seller who accepts Rs. 5 Lakhs in cash as an advance can face a penalty of Rs. 5 Lakhs. For a refund paid in cash, the penalty falls on the person who repays it.

The law allows relief only where the receiver proves a genuine and reasonable cause. Tax officers read that exception narrowly, so it is a weak defence for a planned cash payment.

Why Cash Hurts the Buyer Too

A buyer who pays in cash avoids the penalty but takes on other risks. The first is proof: a bank record is the cleanest evidence of what was paid, when, and to whom. In a dispute over the title, a cancelled booking or a refund, cash receipts carry far less weight than a bank statement.

The second risk is tax on the buyer's side. The cost of a home is also the base for working out capital gains when it is sold later. A price kept low on paper, with the balance paid in cash, raises the taxable gain on that future sale.

The third risk is scrutiny of where the cash came from. Sub-registrars report property registrations of Rs. 30 Lakhs or more to the Income Tax Department. Cash spent on a home that cannot be traced to declared income can be taxed as an unexplained investment, at a much higher rate than normal.

Under-Reporting the Price

A request for part of the price in cash usually means the seller wants a lower figure in the sale deed. In Karnataka, stamp duty is charged on the guidance value or the agreed price, whichever is higher. A low figure on paper often saves little duty, while the risks remain with both sides.

Income tax adds another check. Where the stamp duty value of a property exceeds the price paid by more than 10%, the gap can be taxed as the buyer's income. The seller is taxed on the higher value as well, so an understated deed rarely helps anyone.

Paying a Builder for a New Flat

For a project registered under RERA, payments go to the project's designated bank account. The Karnataka RERA portal advises buyers to pay only into the account approved for the project. A cash payment to a builder or a sales agent may never reach that account, which weakens the buyer's claim if the project is delayed.

Home loans follow the same logic. Banks pay the builder directly in stages and expect the buyer's own share to be paid by bank transfer, with receipts. A cash portion outside the agreement value cannot be financed and creates a gap in the loan file.

Checks Before Paying for a Home

A few simple habits keep a purchase clean from booking to registration. The main ones are these:

• Pay the token, the advance and every instalment by cheque, demand draft or bank transfer
• Collect a receipt for each payment that matches the amount in the bank statement
• For a new project, pay only into the account named in the agreement and on the RERA portal
• Make sure the sale deed shows the full price actually paid
• Treat any request for a cash component as a warning sign about the deal
• Ask a chartered accountant about the current section numbers and any special case

Ask us for help with the paperwork on a flat or plot in Bangalore. We can connect you with lenders and advisers who handle property transactions regularly.