• Tax for capital gains taken in form of cash

Hi Team,

I recently sold a land for my house construction purpose. I bough it way back in 1986 for 18,000 Rs and now sold for 8L as per Govt Value. But the seller paid be 3L in cheque and rest in cash. I used all this amount for my construction and gave this money in form of cheque to my builder. Now my CA says I need to pay tax for money in cash even I paid to builder using cheques. Can some one help me what is best way to make sure I do not pay tax and everything was done legally no extra money taken. Govt Value was only paid to me as it was less developed area. And for all transactions my PAN was quoted.

Thanks in advance.
Asked 6 days ago in Capital Gains Tax from Visakhapatnam, Andhra Pradesh
Since you have used the cash to make payment to the builder by cheque, the money has anyway entered in the banking system. So all you need to do is file your return disclosing the capital gains based on Rs 8 Lakh sale value (or Rs 8 + 3 = Rs 11 Lakhs if that's what you received) and use the capital gains for construction. The house should be constructed within 3 years of selling the land. Effectively, using all the gains for construction avoids all the capital gains taxes so nothing to worry here. For more details you can call me through the Taxfull website and have a quick discussion. Also you can find me on linkedin amitnarula.
Amit Kumar Narula
CA, Bangalore
32 Answers

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Hi,

In a way your CA is right. Accepting cash for more than 1 lacs in a property deal is restricted and penalty of 100% can be levied.

However, you don't need to upfront pay tax on it. Penalty can only be initiated by tax officer if he gets to know about it.

Can you pls tell me the agreement value in case of sale? Was it 3 lacs or 8 lacs?

Please feel free to call/ revert in case you need more clarity

Thanks and regards
Abhishek Dugar
CA CS B.Com
Abhishek Dugar
CA, Mumbai
2929 Answers
123 Consultations

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You would need to use the net consideration (8.34 L) for construction or purchase by the due date of your ITR filing - if you sold before 31 Mar 2018, by 31 July 2018 and if this after this date, then 31 July 2019. If not done, deposit the remaining money in Capital Gain Account Scheme with a Bank and withdraw as and when you have to pay to the builder. You say you have already paid that money to the builder, so can I assume you don't have anything left in your hands? Also you should not have any other home in your name to claim this benefit. Its available only when the new house you buy or construct is the only home you have in your name.
Amit Kumar Narula
CA, Bangalore
32 Answers

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Hi

Accepting cash exceeding Rs. 1 lac os against the law and a penalty upto 100% of the amount received can be levied.

As far as capital gains tax is concerned, you need to invest the amount of total sales proceeds in a new residential house property in order to claim exemption under section 54F. I hope the construction done by you as stated above is on a new residential house property. 

You can file the returns claiming the exemption, penalty may arise if any query arises in the future from the income tax department.
Lakshita Bhandari
CA, Mumbai
1467 Answers
40 Consultations

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If the amount has not been invested and you want to invest in a residential house property soon, you need to deposit the amount in capital gain deposit account before return filing. The amount can be later withdrawn at the time of investment/ construction.
Lakshita Bhandari
CA, Mumbai
1467 Answers
40 Consultations

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Assuming you sold the property before 31 st march 2018,and in case you had not utilised funds yet then ,it is advisable to deposit the same in capital gain scheme account before return filling date and claim tax benefit of sale transaction.
Further you have to use the funds for construction within 3 yrs from date of sale to claim benefit of exemption.its easy to withdraw funds from this account too.
Swati Agrawal
CA, Indore
352 Answers

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Hi,

No, as long as you report the property in the tax return as sold in your hand for 8 lacs, you can invest the entire capital gains (cash sale as well as cheque sale) in the new property construction, I see no impediment in doing this. Just keep your bank account statment, payment receipt in your records.

Thanks
Damini
Damini Agarwal
CA, Bengaluru
208 Answers
9 Consultations

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Dear Sir,

You can not receive more than RS.2 lacs in cash otherwise there is an equal penalty for the amount received more than RS.2 lacs in cash. First of all, calculate the capital gain and invest the proceeds either in bonds or house property.



Thanks
Vivek Kumar Arora
CA, Delhi
857 Answers
15 Consultations

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Hi,

Still, you have exposure of penalty and nobody can do anything about it. So stop thinking about that. 

Over and above, you will be liable to pay capital gain tax, if you done invest the money back in bonds/ house.

If you intend to invest in coming 2 -3 years, still you can save taxes by putting the money in cgds account temprorily.
Abhishek Dugar
CA, Mumbai
2929 Answers
123 Consultations

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You should avoid getting into such transactions as they are illegal and would invite unnecessary penalties and harassment. The suggestion right now will be to reinvest the entire capital gains (Including cash receipts) and keep all supporting with you. In case of any queries, you should have adequate proofs to defend your position.

Regards,
nikhil.
Nikhil Khanna
CA, Mumbai
698 Answers
3 Consultations

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From 1/03/17 onward any transaction (including capital transaction) above 2 lacs needs to be done via banking channel. Penalty for transaction done in cash above 2 lac is transaction amount itself. 
If registration of Property is done at 8.34 lac, then it can be an issue later. 
You have done the transaction in wrong way. It can be sorted out in better way if you personally go to the office & meet a good chartered, rather than discussing in this FORM of Communication.
Chirag Maru
CA, Raipur
33 Answers

Not rated

Hi,

Hope you are doing well.

As per Section 269ST, any person who enters into a transaction of Rs 2 Lakh or above in cash, will be liable to a penalty of an amount equivalent to the amount of transaction.

So, you can not receive more than Rs. 2 lakh in cash. Please calculate the amount of capital gain and invest in residential house property.

If you do not intend to invest in a house, you can buy specified financial assets. "Capital gains from sale of any long-term asset can be claimed as tax-exempt under Section 54EC of the Income-Tax Act by investing in notified bonds within six months of its transfer,"

Thanks & Regards,
Payal Chhajed
Payal Chhajed
CA, Mumbai
31 Answers

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