Near the end of negotiating a resale flat in Bengaluru, the seller made a familiar suggestion. Part of the price, he proposed, could change hands in cash, keeping the registered value lower and the paperwork lighter for both sides. To the buyer it sounded like a small, shared saving. What neither had priced in was that the income tax law treats cash in a property deal as something close to a red flag, with penalties that can equal the entire cash amount. The saving they imagined was real only until the tax department noticed. The safer path, paying every rupee through the bank, was also the one that left the buyer with proof and the seller out of trouble.

The short answer. You should pay for a property entirely through banking channels, because the income tax law restricts cash in property dealings. A cash advance or token of 20,000 rupees or more towards the transfer of a property breaches Section 269SS and can attract a penalty equal to 100 percent of that cash under Section 271D, and receiving 2 lakh rupees or more in cash breaches Section 269ST, with a matching 100 percent penalty under Section 271DA. The penalty falls on the person who receives the cash, usually the seller, but the buyer loses proof of payment and invites scrutiny too. The trade off is a false one. A cash saving is small against a penalty that can equal the cash itself.

Can I pay for a property in cash?

In practice, no, not beyond very small amounts, because the income tax law is built to keep cash out of property transactions. The rules do not ban owning or buying property, but they penalise receiving the money for it in cash above low thresholds, which comes to the same thing for a buyer trying to do it properly. Two provisions do most of the work. One restricts cash advances and token amounts towards a property transfer, and the other restricts large cash receipts of any kind. Between them they cover the whole arc of a purchase, from the first token to the final payment, so there is no stage at which handing over a significant sum in cash is safe. This is why serious buyers and sellers route every rupee through account payee cheques, bank drafts or electronic transfers. It is not merely good practice. It is how you stay on the right side of a law that treats cash in a property deal as a penalty waiting to be levied.

What does Section 269SS say about a cash advance or token?

Section 269SS bars accepting a cash advance of 20,000 rupees or more towards the transfer of immovable property. The provision covers any advance or part payment relating to the transfer of a property, described as a specified sum, and it requires that such money be received through an account payee cheque, a bank draft or an electronic transfer rather than in cash once it reaches 20,000 rupees. A crucial and often missed point is that the rule bites even if the deal later falls through, because it applies to the advance itself, not to whether the sale is eventually completed. So a token amount paid in cash to hold a flat, if it is 20,000 rupees or more, is already within the provision. The penalty for a breach comes under Section 271D and can equal 100 percent of the cash amount received, levied on the person who received it. There is room to show a genuine reasonable cause, but a buyer should not rely on that, and should simply pay the token and every advance by bank transfer.

What does Section 269ST say about larger cash receipts?

Section 269ST restricts receiving 2 lakh rupees or more in cash from one person, and it catches property payments squarely. The limit applies to a receipt of 2 lakh rupees or more taken from a single person in a day, or for a single transaction, or in respect of one event or occasion, so it cannot be sidestepped by splitting a payment across a few days or into several instalments tied to the same deal. Because almost every property payment beyond a token crosses 2 lakh rupees, this provision effectively rules out cash for the substantive part of a purchase. The penalty sits in Section 271DA and again equals 100 percent of the amount received in cash, levied on the recipient. Read together with the advance rule, the message is consistent. Small cash is tolerated, but the amounts that matter in a property deal are exactly the ones the law wants to see moving through the banking system, where they leave a trail.

What are the cash limits and penalties?

The table below sets out the cash rules that bear on a property purchase and what each one means.

Reading across, the two thresholds and the penalties leave very little room for cash in a genuine purchase. The 20,000 rupee limit catches the token and the advances, the 2 lakh rupee limit catches the larger payments, and both penalties can equal the entire cash sum. A buyer who insists on banking channels for everything is not being overly cautious. They are simply staying outside the reach of two provisions that were written to make property cash expensive.

Who bears the penalty, and why should a buyer care?

The penalty formally falls on the person who receives the cash, usually the seller, but a buyer has strong reasons of their own to refuse cash. It is true that under both provisions it is the recipient who is penalised, so a seller taking cash is the one exposed to a demand of up to 100 percent of the amount. Yet the buyer who pays in cash walks away with no clean proof of having paid, which matters if a dispute arises or if the deal later needs to be shown to a bank or a court. Paying in cash also tends to accompany an understatement of the price to save stamp duty, which is a separate risk that can unravel later. And a buyer who cooperates in a cash deal is drawn into a transaction the tax department is designed to notice, which is not a comfortable place to be for the sake of a modest saving. The cleaner course protects both sides, because bank payments give the buyer proof and keep the seller clear of the penalty, so refusing cash is as much in your interest as in the seller's.

How do I keep my property payments clean?

Work through these steps across the payment stages of a purchase.

1. Pay the token or booking amount by bank transfer, never in cash, from the very first rupee.
2. Keep every advance and part payment to account payee cheque, draft or electronic transfer.
3. Decline any suggestion to pay part of the price in cash, however it is framed.
4. Match the registered value to the actual price rather than understating it for cash.
5. Keep bank records of each payment as your proof of what you paid and when.
6. Route the payment so the required tax deduction on the price is also traceable.
7. Remember the token rule applies even if the deal is later cancelled.

How does this fit stamp duty and TDS?

Keeping payments clean sits alongside the other money side checks a buyer runs at registration. A cash deal usually goes hand in hand with understating the price, which is exactly what the stamp duty rules resist, as we explain in our guide to Karnataka stamp duty and registration charges, and paying through the bank is also what lets you deduct and deposit the buyer's tax cleanly, covered in our explainer on TDS on a property purchase under Section 194-IA. Stamp duty, the tax deduction and the cash rules are all versions of the same principle, that the real price should be paid and recorded through the banking system. Paying in cash to save a little tends to collide with all three at once, which is why the simplest and safest rule is to pay every rupee through the bank.

Frequently asked questions

Can I pay a property token in cash? Not once it reaches 20,000 rupees. Section 269SS bars accepting a cash advance or token of 20,000 rupees or more towards the transfer of immovable property, and the rule applies even if the deal is later cancelled. A breach can attract a penalty equal to 100 percent of the cash under Section 271D. Pay the token by bank transfer.

How much cash can change hands in a property deal? Very little. Beyond the 20,000 rupee limit on advances, Section 269ST bars receiving 2 lakh rupees or more in cash from one person, in a day or for a single transaction, which covers almost every real property payment. The penalty under Section 271DA equals 100 percent of the cash received. The substantive payments must go through the bank.

Who is penalised if a property deal is done in cash? The person who receives the cash, usually the seller, bears the penalty, which can equal 100 percent of the cash under Section 271D or 271DA. A buyer is not penalised under these provisions, but paying in cash leaves you without proof of payment and draws you into a transaction the tax department is designed to flag.

Why should I insist on paying by bank transfer? Because it keeps you within the law and gives you proof. Bank payments through account payee cheque, draft or electronic transfer satisfy the cash restrictions, create a clear record of what you paid, and let the required tax deduction be made cleanly. Cash tends to come with an understated price and tax exposure for the seller.

Last updated 2026-08-31. PropNewz Team.