Cap on cash transactions above ₹3L worries real estate sector

As the Union Finance Minister presented the Budget, a group of property dealers and small-time builders in a cosy room in South-east Delhi had their ears cocked at the speech. After a while, their worst fears came true!

"No cash transactions above Rs three lakh would be allowed," said Arun Jaitley. Just after the statement, their faces looked tensed. They knew this announcement means problem to them since in many parts of the Capital, property sale survives and breathes on the cash payments in lakhs whereas, only a meagre amount is paid in cheques.

They have genuine reasons to be worried. Property sellers demand that 30 to 50 per cent of the property's price be paid in cash. This practice is prevalent in many parts of the country. Investing undeclared wealth in properties via illicit transactions and lax regulations is considered the safest way to hide black money and evade tax.

A buyer said that he has been asked to make only 30 per cent in cheque but the rest 70 per cent has been demanded under the table in cash that results to unaccounted money, thus saving the seller from tax.

The decision to ban cash transactions beyond Rs three lakh is based on the recommendations of the Special Investigation Team on black money that was set up by the Supreme Court. The SIT, headed by Justice M B Shah (retired), in July had submitted its fifth report to the Apex Court on steps needed to curb black money.

Liases Foras Real Estate Rating and Research Private Limited reported that in 2012, about 30 per cent of total transactions in real estate investments were conducted through black money.

It clearly indicates that the government is in a mood to enact a law making cash transaction above Rs three lakh as a punishable offence.

This means clear trouble for those dealing in cash transaction above Rs three lakh. If the seller jumps the rule, he might be prosecuted. However, a good news is that this might bring more transparency in the real estate sector.

Experts believe that though the huge cash transactions to evade tax is still illegal, the limit of Rs three lakh might desist people from crossing the threshold fearing legal action.

"We hope that this move will curb the sky rocketing prices of property and we will be able to buy one in reasonable rates without paying a chunk of money in cash," said a buyer who did not wish to be named.

Meanwhile, no seller or property dealer wished to open their mouth for an obvious reason as the announcement has come to them as a big blow to their illegal transactions.