Cash Limits in a Property Purchase: What a Bengaluru Buyer Must Know

A Bengaluru buyer negotiating a resale flat in Jayanagar in September 2026 was asked, almost casually, to pay a part of the price in cash to keep the recorded value low. It sounded like a favour to both sides. It was not. The income tax law puts strict limits on cash in property deals, with penalties that can equal the entire cash amount, and those penalties usually land on the person who accepts the cash. Understanding these rules protects a buyer from a request that looks harmless but can turn an ordinary purchase into a taxable mess.

The short answer. The Income Tax Act restricts cash in property transactions. Under Section 269SS, no one may accept a cash advance of twenty thousand rupees or more for a property transfer, and under Section 269ST, no one may receive two lakh rupees or more in cash in a transaction. Breaching either can attract a penalty equal to the full cash amount, levied on the person who received it. The trade-off for a buyer is none at all: paying through banking channels is safer, creates proof of payment, and keeps your title and tax position clean, so a cash request is one to decline.

What are the cash limits in a property purchase?

The law effectively pushes property payments into banking channels by penalising large cash dealings. Two provisions do most of the work. Section 269SS restricts accepting a cash advance of twenty thousand rupees or more in relation to the transfer of immovable property. Section 269ST restricts receiving two lakh rupees or more in cash in a single transaction. Between them, they mean that a serious property payment, whether an advance or the price itself, is expected to move by cheque, bank transfer, or another banking mode, not by handing over notes.

For a buyer, the takeaway is simple. Any suggestion to pay a meaningful part of the price in cash runs into one of these rules, and the consequences are real. The clean path is to route every payment through the bank, which also gives you a clear, dated record of exactly what you paid and when, and a record is precisely what you will want if anyone ever questions the deal.

What is the twenty thousand rupee rule under Section 269SS?

Section 269SS says that no person may accept an advance or a specified sum of twenty thousand rupees or more in relation to the transfer of immovable property, other than through an account payee cheque, an account payee bank draft, or an electronic banking mode. In plain terms, a booking amount or token advance on a property should not be paid or accepted in cash once it reaches twenty thousand rupees. The provision is in the Income Tax Act, which you can read in the official statute on India Code.

The penalty for breaching this, under Section 271D, can be equal to the whole amount accepted in cash, and it falls on the person who accepted it. So a seller who takes a large cash advance is the one exposed, but a buyer who agrees to the arrangement is party to a deal that can unravel. The safe course is to pay any advance by cheque or transfer, with a clear reference to the property.

What is the two lakh rule under Section 269ST?

Section 269ST says that no person may receive two lakh rupees or more in cash from a single person in a day, in respect of a single transaction, or in respect of transactions relating to one event. A property sale is exactly the kind of single transaction this covers, so receiving the price, or a chunk of it, in cash at or above two lakh rupees breaches the rule. The penalty under Section 271DA can again equal the amount received in cash, and it falls on the recipient.

Read together with the advance rule, the message is consistent. Whether it is an advance or the sale consideration, large cash is penalised, and the person receiving it carries the cost. The table below summarises the main provisions and who is exposed.

Who bears the penalty, the buyer or the seller?

The penalties for breaching these cash rules fall on the person who accepts or receives the cash, which in a property sale is usually the seller. Section 271D and Section 271DA both target the recipient, so a seller who takes a large cash advance or a cash sale amount is the one exposed to a penalty that can equal the money involved. That does not make a cash deal safe for a buyer, though. Being party to a transaction structured around cash can complicate your own tax position, cloud the proof that you actually paid, and leave the deal open to challenge later.

So even though the direct penalty usually sits with the seller, the buyer has every reason to refuse a cash arrangement. Your protection is a clean, banked payment trail that matches the registered value, and a seller who insists on cash is asking you to take on risk for their benefit.

What should I do if a seller insists on a cash component?

Treat it as a reason to slow down, not a detail to accommodate. A seller who wants part of the price in cash is usually trying to under record the sale value, which lowers their own tax but leaves you holding a registered deed for less than you actually paid. That gap can hurt you later, when you sell and your own gain is computed from an artificially low purchase value, and it offers you no protection if a dispute arises over the cash portion, because there is no record of it. What looks like helping the seller save tax is a risk you absorb.

The firm and simple response is to insist that the full price move through banking channels and be recorded honestly. If a seller will not agree, that itself tells you something about how the deal is being run, and it is worth reconsidering rather than bending. You are not being difficult by refusing cash, you are protecting your title, your future tax position, and your proof of what you paid. A clean deal is worth more than a small, uncertain saving that is not even yours to keep.

Why should a buyer insist on banking channels anyway?

Because a banked payment protects your title, your tax position, and your proof of payment all at once. When you pay by cheque or transfer, you have a clear record of every rupee that went to the seller, which supports your ownership if a dispute ever arises. It also aligns with the tax at source you must deduct as a buyer, which itself runs through the banking system, as covered in our guide to TDS on a property purchase. A cash component, by contrast, leaves no clean trail and often signals an attempt to under record the price, which helps no one but exposes everyone.

This is buyer guidance, not investment advice, and it is also simply the safer way to transact. Pair the banked payments with a properly documented agreement, so the money and the paperwork tell the same story. For how the advance and the final deed fit together, see our note on the sale agreement and the sale deed. A buyer purchasing in a project such as Brigade Banashankari would route every payment through the bank from the token onward.

A seven step cash-clean checklist

Use this order from the first payment through to the final settlement of the flat.

1. Pay any token or advance by cheque or bank transfer, not cash.
2. Keep every advance at or above twenty thousand out of cash.
3. Route the sale consideration entirely through banking channels.
4. Refuse any request to pay a part of the price in cash.
5. Match your banked payments to the value recorded in the deed.
6. Deduct and pay the buyer TDS through the banking system.
7. Keep the bank records and receipts with your purchase file.

Frequently asked questions

Can I pay a property advance in cash? Not once it reaches twenty thousand rupees. Under Section 269SS, an advance of twenty thousand rupees or more for a property transfer must be paid through a banking channel, not cash. The penalty for accepting it in cash, under Section 271D, can equal the whole amount and falls on the person who took it. Pay any advance by bank.

How much cash can be paid in a property sale? Effectively very little at the levels that matter. Section 269ST bars receiving two lakh rupees or more in cash in a single transaction, and a property sale is such a transaction, so the price should move through the bank. Receiving two lakh or more in cash attracts a penalty under Section 271DA that can equal the amount.

Who pays the penalty if cash is used, the buyer or seller? The person who accepts or receives the cash, which in a property sale is usually the seller. Sections 271D and 271DA target the recipient, so a seller taking a large cash advance or cash price is the one exposed. But a buyer should still refuse cash, because it clouds proof of payment and can complicate your title.

Why does a banked payment protect me as a buyer? It gives you a clear, dated record of exactly what you paid the seller, which supports your ownership in any future dispute and matches the value you register. It also aligns with the tax you deduct at source, which runs through the bank. A cash component leaves no such trail and usually signals under recording.

Last updated 2026-09-19. PropNewz Team.