Tuesday, November 22, 2016

Myth Buster: Receipt of cash in new currency on selling a property would also invite penalty

After the demonetization of old currency notes of Rs 500/1000 denominations on Nov. 8, 2016, there is chaos among people holding hefty amounts of cash. Many taxpayers are left with cash proceeds on sale of property which they have accepted in black from buyers. What are consequences if sellers deposit such receipts in bank account?
Section 269SS of the Income-Tax Act prohibits acceptance of Rs. 20,000 or more cash for any transaction of transfer of immovable property. The prohibition applies whether the sum is received as advance or otherwise. In terms of section 271D, violation of this prohibition attracts a penalty equal to the amount accepted or received.
Thus, if the seller deposits the black component of sale price (received in cash) in bank account and declares it in its return of income and explains it as consideration for sale of property, he is liable to pay capital gains tax with reference to total consideration including black. He will also be visited with a penalty under section 271D equal to the amount of cash accepted or received by him.
Editor’s comments: Any sale proceeds received in cash on or after Nov. 9, 2016 in demonetized notes is an invalid transaction. Even if someone has received new currency as sale proceeds, this will result in levy of penalty which shall be equivalent to amount so received in cash.

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