How you become a loser when you pay in black for your real estate property ?

Naresh recently visited a new residential project in Pune which was ready for possession. The property cost was in his budget and he was about to finalize the deal. The total cost of property was around Rs 40 lacs. Stamp duty and Registration cost was to be paid separately which would take total cost to around 43 lacs. This was a bit heavy on Naresh pocket, so out of his regular habit, he inquired if there is any trick by which he can save some money on the deal ?

Bought house by paying in black

The builder was quick to give him a great saving advice“Sir , You have to pay 6% stamp duty and 1% registration cost on the agreement price. Which comes to 7% of 40 lacs, thats 2.8 lacs additional, thats the reason the total cost comes around 43 lacs . Now if you want to save money, what you can do is pay some part of the deal in cash to us (means pay in black) and we will reduce the agreement cost by that much, that way – we will also save our tax on the black money part and you will save 7% on that cash amount. Like if you pay us Rs 10 lacs in Cash, then we will make the agreement for Rs 30 lacs only and you will have to pay stamp duty and registration cost on only 30 lacs which will be 2.1 lacs, and it will save you Rs 70,000 without doing anything extra ! . Cool na ! .”

The offer was tempting and Naresh fell for it, how cool is saving Rs 70,000 , all you need to do is pay some part in cash and lower the agreement amount in records. But do you understand, what is your loss in long term because of this kind of deal ? Let me break some hearts today, who have already done this mistake while buying their properties.

Stamp duty and Registration Costs

First understand that stamp duty and registration costs vary from one state to other state. For example – In Maharashtra, its 6% + 1% = 7% in total , so whatever is your total agreement cost , you will have to bear additional 7% on that amount as stamp duty + registration costs. Given the huge amount involved and the financial crunch every buyer faces at the last moment of the deal and hunger of builders to save every bit of tax, makes sure that buyers fall for this trick of paying huge amount in CASH (black money) and register the property at lower price just for few thousands (actually sizable if you look at it). This looks like win-win situation to buyers and they are pretty happy about it, however truly speaking, this is a loosing deal for the buyers in a very long run (if you are going to sell the property later) and only benefits the builders and let me now explain you why is it so ?

At the time of selling – The cost of house matters 

I hope you are very clear that when you sell your property in future , you pay the tax on the profits made. And the profit is decided by your COST of the house and the sell price. So lower the cost of your house, the higher the profits on paper for you in future. You might be aware of the fact that indexation is applied in case of real estate transactions and 20% tax is paid on the profit.

Now lets take this same example we are discussing and see how much you save at the time of purchase and how much you loose at the time of selling , which can be in distant future. See the working below and try to understand the whole situation

How paying black money in real estate transaction can lead to loss in long term

In the example above you can clearly see that by paying Rs 10 lacs in cash, a person is able to save Rs 70,000 instantly. However they are not able to look beyond the obvious and visualize the kind of loss they will incur in future when they decide to sell the property. The same person will pay 3.4 lacs of additional tax in future because he/she paid Rs 10 lacs in cash years back.

Now there are few points which can be debated here like there can be changes in laws in future, or one can save the tax by investing in another real estate properties (which again depends on future laws) , but the point here is to educate you on the long term implications    of this. Now if you fully understand the message of this post, you can take your decisions with full responsibility.

Whats your take on this ?

179 CommentsAdd Comment

  1. SONIA

    good one but what if we have no plan to sell it and use for our family for long term .then 1 part make sense and second part becomes irrelevant

    • shivanand Shetty

      1. 70,000 saved can be invested which at the end of 7 years will compensate to some extent the loss incurred.
      2. White/black Component is existing system – which is 25-40% prevailing in the market.
      3. While selling, the sale again cash component comes to picture. So utlimate tax paid will be less.
      4. Normally whenever a flat is sold, the amount realised is invested in another flat. so it takes care of the profit earned…

      • Sushrut

        And you will be the part of black economy. Why one should convert his hard earned money into black? By paying money in cash to builder, you are making your ‘SUPER WHITE’ money black.

        • Prasanna

          We are helpless, I am one of victim who’s not able get a plot as I want to and can only pay in black. So, I lost 3-4 years in hunting for the right property, but property rate have gone more than double now… I am the biggest loser in the World!!! Everybody else (Owner, Agent, Reseller….Govt) made money…

  2. harish mittal

    Sir, you are assuming that Selling price will be paid totally in cheque. But one who is paying less amount in cheque will also do the same at the time of sellling . He will accept omly 55-60 lacs in cheque & rest in cash, So here also he save some money

    • pradip

      That depends on whom you are selling to. A real estate investor will be able to give you the cash you want. But, if you are selling it to a someone who will be buying it with a housing loan, your chances are slim. Lot of genuine customers(who will be buying for staying) won’t be able to offer a lot of cash.

  3. Sohil

    Just for information.

    There is also concept of ready reckoner in maharashtra.
    Here the state decides price of area according to its own calculation.
    So in example Manish you mentioned that one showed 30 lakhs as cost price.But if according to reckoner calculation the price should be 37 lakhs .Than stamp duty must be paid according to that price.
    Also since a mismatch is seen here also it can cause scrutiny to the buyer.
    Also somewhere the reckoner price seem to be high say 45 lakhs whereas builder genuinely is ready to sell property for 40 lakhs to reduce his pile up.Than also stamp duty must be paid according to reckoner.

    In short government trying hard not to loose opportunity to earn its share of money.

    • Atharva

      Sohil has a point which i have experienced very recently in Pune (Maha). The property deal was finalized @48L + taxes and the valuation as per ready reckoner turned out to be 45.5 L …. which is almost at par(and huge surpise to me) . So the trick played between buyers and sellers is know known by the govt is what might be the reason for increasing the ready reckoner rate. ..So the deal was made in complete white.


  4. Manish

    Hi Manish, what happens in general scenario is that while selling the house, the owner will again ask for a component to be paid in CASH (Black) by which the amount on which he will be taxed will be lower.

    In short, making a transaction in CASH once (while buying the flat) will force the person to ask for a CASH component while making another transaction (while selling the flat)

  5. Anon

    The trick is to sell it to a seller who will again give some part of the money in black. So while selling for 1 crore, the seller asks for 20 L in black. And the cycle continues.

    Before you tell me what the seller will do with 20 L:
    1. He can buy gold biscuit in cash and keep it.
    2. He can invest in other property where he needs to pay cash again.
    3. He can invest it in his business.

  6. Sushila

    We were lucky that our flat owner explained all above while buying from him. He well explained this to us regarding long term gains and asked us to pay everything in white. He is very genuine old man who worked for Indian Navy and SBI.

    Me and my hubby are salaried and we had everything in it became very good deal to find this old gentleman.


  7. vikas himatsingka

    Hi, Manishjee, it is a true fact but i agree with Harsh mittal words and now, a days this are happening and black money is again re-invested in some other way.

  8. Snehal

    Will this arrangement work if we take into consideration the recent amendments made specifically for Real Estate Transactions in Budget 2013?

  9. Nishant Sahay

    The theme of the article is absolutely correct. The example has very well explained what an “ordinary” (read gullible) investor would do.
    However, even though the diff seems to be huge, it may not actually be so if we consider the time value of money. :)

  10. Niraj Kumar

    Hi Manish,

    Thanks a lot for the post, very informative.

    Hi Sohil,

    You said that state decides price of area according to its own calculation, is this ready reckoner available online?, is there any way to find out the Govt/State valuation of a land in any area?

  11. Amit Sawhney

    More importantly, the whole act of paying in black takes away our right to comment on any act of corruption. If we can be corrupt for such a small amount, our politicians’ and bureaucrats’ behavior is just and valid when they act irresponsibly for a larger gain.

    • sevan

      In most of the cases, it is not that we support the Corruption. Here in Bangalore, I can easily claim that it is next to impossible to find a flat which can be fully paid in white. The owner/builder does not accept paying fully in white and will even cancel the deal if insisted on. What is the solution then?

      • Anand

        You need to stick to your plan. I have purchased house in Bangalore and I paid the whole amount to builder by cheque (20%) and rest was paid by bank (80%). There was no black money involved.

        • sevan

          We can only stick to our plans as far as the budget of the flat is concerned. The final say definitely lies with the owner/builder. They will nonchalantly say “Take it or forget it”. Ultimately I feel its lucky to find a owner who agrees to take full-white…

      • Pradeep

        That is ridiculous. In Bangalore, one can easily buy properties, if one wants to, without paying anything in black. We bought one for 80L in full cheque transaction. There can be instances where second hand flats, folks may expect black. But it does not mean, you cannot easily buy in white.

  12. Sahil

    Hello Manish,

    It was a nice article and I got the message, however in practical, there are a lot of buyers who prefer to pay mostly cash and register the property in much lower value than the prevailing market price as a buyer does not want to show his real income (as his sources of income are also from black money) and also Save tax (obvious reason).

    One of my close relative wanted to sell a plot (in White money) and it was very difficult to find a buyer as no one was ready to buy it with total White money. As the appreciation from that property was not good, he had to sell the property at a lower than market price due to this reason (all payments in white) and invest the amount elsewhere.


    • Thansk for sharing your case Sahil

      Agree with you that reality is very different than the article , but anyways thats the point we want to bring in , atleast people can start thinking !

  13. Ramesh

    Many of us feel that while selling we can get some part of amount in cash thus avoid the tax on profit, for a builder to do away with black is very easy but it would be very difficult to keep the huge cash in black for a common man like us and spend it without the knowledge of the tax-man. I would still prefer to invest in a new property rather than taking cash in black. This may differ from individual to individual and each one has to have his own thoughts on this and opt for the best.

  14. Venugopal

    Nice article Manish! Almost all people know about cash requirement. Good you added CII to show your point. There is one comment from “Manish” above which is worth including in your article.
    Another point is on the loss already in place by paying 10Lac in cash. Meaning indiviual would have already paid Tax for 10Lac. During the course of this transaction 10Lac of white money gets converted to 10Lacs of black, where the buyer already lost around 3 lacs(depending upon tax slab) paid towards tax.

  15. joseph

    In Maharashtra, about stamp duty you are correct. After certain slabs, You have to pay @ 6%. BUT there is correction in registration fee, which is 1 % but maximum upto 30,000/- Rs. only

  16. Samir Shah

    Hey manish,
    This is really an eye opener for me. As I wasn’t really aware of the tax implications on selling the property.

    Can u suggest a go to blog specifically for property investment? One like jagoinvestor.

    Hats off to you and nandish, you both really changed my vision for finance.

  17. Chandrasekaran

    By all these comments & Manish article i come to know most of the property dealings & it`s positives & negatives.
    It`s a good communication on real estate dealing, which has in fact many hurdles in practical, not only Black & white but also multi dimensional Human attitude, towards saving & investments.
    Thank you Manish, you are really making us to grow in our knowledge of investment.
    With Regards

  18. Chandan Singh Padiyar

    It looks like transactions in Black are a Normal for the Society, Infact we should willingly STOP the practice of entering into any Transaction which requires Malpractice, What is the point in gaining some Amount by compromising our Integrity.

  19. Wriju Bharadwaj

    Hi Manish,

    A very useful piece of information for buyers. But somehow I feel due the prevailing mentality of people and tendency to opt for tax evasion, people will still tend to go for malpractices.

    Thanks for sharing nonetheless.


    • Definately Vaibhav ! . He will , the article is about showing the possibility not suggesting anything . Thanks for your contribution to article and take time to comment :) . Welcome to this blog

    • Abhijeet

      @ Vaibhav,

      Author here is talking about proprietary of moral values of an individual,
      & somebody also talked about a word integrity,
      We as a responsible citizen need to step towards sensible acts in our life so that we shall be able to contribute something for better society.

      Have you ever heard those word’s before ?

  20. Manish, unfortunately the key driver for all decisions taken today is instant gratification. So many people do NOT think long term, and just focus on the next moment. Of course, am not getting into the aspect of morality here. Having said that, good article. I never thought about this calculation. But I have purchased a flat in Pune in full white, in spite of many close relatives pushing for ‘some’ tax saving. Fortunately, my builder had both options available.

  21. vrknair

    Govt should bring down the stamp duty on registration and should publish prices of property in any area which should be updated periodically and if anybody pays below the notified price it should be treated as an offence and should be dealt with according to the law of the land…
    If anybody found allowing to generate black money he should be dealt with according to the law of the land.
    Many of the times we hear people telling that they registered a property costing 30 lakhs for 3 lakhs to save stamp duty…He generated 27 lakh black money which is a dis service to the nation…He is destroying the economy of the nation.

    • smitha

      Agree with your views on lowering the registration expenses, which are ridiculously high. Most people prefer to pay their hard-earned white money in black simply to reduce the registration charges. This situation is more prevalent in semi-urban areas where I recently witnessed a transaction in which the official value is shown as 6.75 lakhs even though 28 lakhs has changed hands.

      • yogesh gandhi

        i have a property (market value=20 lacs)
        govt price 4lacs

        can a buyer buy this property from me in 20 lacs white by giving me two cheques of 4 lacs and 16 lacs.

        while registration he shows property price as 4 lacs which is equl to circle rate.

        can i show remaining 16 lacs i got from property sale? or will this income be my unaccounted income.

        one of my friend said that even if buyer is ready to pay in full white, the seller is scared that buyer my sue him for forgery nd selling him the property by quoting hom more thsn govt defined price? can this happen? he said such acase has happened in his neighbor

        if i get a cheque of 20 lacs andthe buyer registers his propertyfor 4 lacs. the account might not tally. what should be done in such a case?

        • You just have to worry for your case and not the sellers . if you get the 20 lacs cheque then 20 lacs is your income and you pay income tax as per that price, how does it matter, on what price its registered by other party ?

      • vrknair

        because they love their pocket more than the pocket of the country(treasury)…They do not think of those poor people whom the govt is helping with the subsidies, creating the infrastructures for the development of India, and so many things like this, for which money required which comes through taxes only…No minister brings any money from the dream land’s money tree(PM already told it!)…out of the blue…like a magician.. in short they do not Love India…in short they love only themselves,,not even their children…because India developed means the future of their children also developed..
        Congress or BJP or the third front…they will all come and go but India will remain and India should remain India for us all because it is our beloved motherland (jaan se pyaari-more beloved to us than even our own life)…They all work & serve , at least lip service, for the betterment, development of India and its people.

        • anonymous

          If people are assured that the paid tax is utilized to build the nation, I m sure noone will hesitate to pay every single penny. but alas, all the tax money is gone into various scams … do not see a single good project running…do not see any scheme that helps business, corporate or agriculture…
          What will general public do :(.

  22. Srinivas

    Interesting article.

    One has to know the nitty gritty to benefit from a rule or law. Finance (capital gains in this case) is no exception.

    It is a fact that in most parts of india black in real estate is a given. Though in few parts there are ready reckoner prices which are revised periodically, mostly the prevelent prices/government prices are far lower than the actual prevailing prices. This is a reason for black money economy to flurish.

    It is well taken that the buyer looses it she pays in black. Ideally, all payment should be white. But can it be that way all the time? When an individual buyer is against a builder, think who can call the shots. Specifically when it comes to finalising a deal. Add to this, the financial ignorance of general public.

    Now, i want to highlight ways in which this can be managed.

    First, the capital gains difference that is shown in the article is, if the CG is paid at the time of sale. If the same is invested in bonds, the tax component goes down drastically. There are other ways to manage CG from sale of house property.

    No, I am not supporting black money here. But as it is a reality, I feel, one has to understand intricacies and make the most of the situation, legally.

  23. Roshni Desai

    Real estate is a seller’s market. All terms & conditions are of the builder. I and my husband recently bought a 2BHK in Mumbai. In our 6 months of property search, we did not find any builder whose offer was completely in white. Else, why have realty prices remained so high despite the recent slowdown.


    Hi Manish, This time you missed one crucial point. How did 10L cash come from ? If you have that you have saved 3L in taxes (if you are in highest paying bracket) :) . If you compute savings on total of 3.7 lakhs for 7 years you will see the difference.

    Increasingly means of using Cash are getting smaller and smaller. Now you can only use them in Real Estate OR GOLD.

    • Hi

      Thanks for sharing your view . The depth has to be found by the reader and discussed in comments section. It would be best if you would add few points to the discussion like others :) and make it a complete things . We are a community btw :)

  25. angan chandra

    good article. one thing i want to mention, in Maharashtra stamp duty is not 6%, it is 5% but stamp duty (5%), registration (1%), MVAT (1%). so total comes to 7% tax need to pay by buyer when buying property.

  26. we are Indians. We will pay black money to buy for less on paper. We will also sell for far more than on paper and receive black money. Till the time we are able to transact, store and evade using black money, I dont think we will be fair in our transactions.

  27. Prasad

    This is a beautiful article but Sorry one thing i was not able to understand is:if a person as brought a house like that again wouldn’t he tempted to under value @ the time of sale?

    • Yes, he is free to do that and it will be a smart enough move from tax saving point of view . The article just makes one aware of the issue involved. One can find out the way out !

  28. joseph

    In any column or article always there are pros or cons or third angle, But I apreciate Manish Chauhan about his efforts to write on this topic. expert can give their views or comment and then only common man will be benefited from this information. Weldon Manish.

  29. Chetan Ambi

    Its good to know the flip side of paying in black for real estate property. Like someone told in the comments section we can invest that 70,000 in some savings which will give returns in 7 years. Anyways txn for this information!!

  30. I firmly believe that if the govt wants to prevent the white money from getting converted into black, they should reduce the Stamp Duty Rate… 7% levy is too high which induces the buyer to pay in cash…

    If this rate i reduced to somewhere around 2-3%, a large chunk of the population will prefer to pay in cheque rather than cash.

  31. Vikameha252

    Thanks a lot Manish for sharing your knowledge on this topic. Can see some guys using bad words here or there in comments section. Really feel pitty on those who challenge you without giving any base to their explanation. May be they at one hand are gaining knowledge from this site (or may be any other source) and then think they are now the master of the trade. Feel good you handling them well and not amongst them.

    People are just reading your articles and gaining so much information that they could not have got otherwise. Thanks a ton.

    Well, I am quite disappointed with Indian political scenario, the corruption, the rapes, the cricket match fixing, people having no respect for others, the traffic chaos, plenty of infrastructure issues like no abundant light, water and here I am talking about big cities forget about villages. And all this after we pay our hard earned money as income tax which are swallowed in one or other scams. So feel no guilt evading tax on property sell/buy if I get the chance.

  32. geev

    You pay cash while buying,you take cash while selling.All this to avoid tax payment.
    The IT department monitors heavy cash transaction,RE registrations by using PAN.Just to save tax you are placing yourself in the path of having to face scrutiny.Passbooks get called by IT people who will check each entry and three years later how much will you remember of the cash movements.Even heavy drawals of cash needs PAN number to be quoted.
    In the ultimate analysis you have to be law abiding and follow laws willingly for the nation to move ahead and we should not be involved in hiding our transactions.No point living a life of fear as to when you will get a call from IT.

  33. Suresh

    Isn’t there an option to skip the indexation benefit and opt for flat 10% tax? If that is possible, tax will be 10% on 70 lakhs i.e. 7,00,000 in case2.

      • Suresh

        Thanx Manish. In that case, showing in black was actually beneficial (not morally though). However, most of the websites quote this option of 10% or 20% (with indexation) only for shares, mutual funds, etc and not for property. Not sure if this option can be availed for property.

  34. Mayank Saxena

    Very informative article and a very nice discussion after that.
    A suggestion to improve the forum:
    Many readers who are eager to gain more knowledge would love to read the complete discussion from the top to the end (like me). Now there are many points which are very often repeated. Can you Manishji, highlight questions which you think are necessary and sufficient for a ‘serious reader’? I know you will do a good job of this too.
    Next like in facebook, can I be constantly reminded (in my email) if further ‘highlighted discussions’ are added to this thread.

  35. Mohan

    Dear Manish,

    Thanks for such a nice and informative article.

    But , Personally, I think the loss is much more . We all forget the money trial. The Rs. 10 L which you paid in cash finds its way from the builder to politicians/ political parties and then to local mafia to underworld and then on to fund the terrorists and you all know the consequences.
    The Rs. 10 L shall also deprive the exchequer multiple times. The seller who received Rs. 10 L in cash shall keep it in cash form and pay to another seller (of a property or some such high value transaction which is normally taxable) in cash and shall deprive the exchequer a second time and so on and so forth.


  36. Jig

    Earlier during my one of query i asked manish for this concern and he replied it is a system in india.
    Yes It is a system in india and you are also mentioning here the problem not a solution , just like others.
    I am an NRI and didnt want to convert my money into black . When i search the Market for full white payment project in my City ( Surat ) , you will not surprised to hear that no single project . In short, if i have to buy house,residential or commerical property i have to pay minimum 40% in black.

    What you will do in such scnerario? We dont buy house for better living?

    All bakwas, as no one ready to improve system….

    • Hi Jig

      Thanks for sharing the views . I agree that many times it happens , but there are cases in many cities where one has the option to make the payment in white (read some comments , people have shared it) , but customer themselves want to pay in black , the article is for them .

  37. Mukesh

    Hi Manish,
    Quick ques – can it be the other way around?
    What if someone wants to register a 40lac home @ 45lac? How does that change the numbers (for ref only)?
    A case in point is if you want more loan from bank, say 90%. But since most banks are paying max 80% as loan, you need to do the agreement at a higher cost to improve upon that. But before that, is that at all possible?


    • Thanks , thats a good idea :) . But why will builder want to do that ? If he registers the property at higher price, it shows that he has got more income (on papers) , If IT department asks him to pay tax on that amount, what will he do ?

  38. vikas

    Nice Artical, but as in India 99% deal are done with Black money so multiple ways out.

    Another Aspect of registration is doing under construction house registration
    – Half( some x%) amount is value register with StAMP duty-
    – Half amount or ( some 100-x%) for construction agreement between buyer and builder

    Do we must do registration of construction agreement or not? Can we save money on that registration?

    Also typically house have interior works also of around 10-20% of total value. how do we accommodate that while reselling?

    Can anyone shade light on that?

  39. Ravi

    If a buyer pays his white money in cash to builder(for builder it is black) while purchasing property, is there any other loss than what Manish explained while selling?

    any inputs?

    • Vivek

      Yes, if the Registering Authority finds out that you have understated the property value in order to save on Stamp duty, it can penalise you with double the amount of stamp duty.

      Both the parties will also invite wrath of Income Tax Authorities.

      Better be safe than sorry.

  40. Vivek

    Yes, Very True Manish,

    I am surprised to see you think just like me.

    Many may not agree with me on the above calculation, but an educated person will definitely understand the nuances.

    I appreciate you took time to jot down such beneficial article.

    Hope readers will comprehend the article and use it to their best advantage.

      • venkat

        I have a different calculation. If the 10 lakhs paid in cash is black money then they have already saved 30.9% (which comes to 3.09 lakhs ) of that in not paying income tax. Now after 7 years you are paying 3.5 lakhs extra as capital gains tax. so, it looks like they have deferred their tax due for 7 years.

        I know it all depends on which angle you see it. But just wanted to tell this could also be the case.

    • Jig

      What you need to do after education if no one offer a flat/house with pure white money?
      You wont buy house for your family and needs?

      Still Real Estate bill is far away and am sure system is not going to improve even though bill will be there.


  41. Prateek Pandey

    Hi Manish.

    A good insight on the matter and a very practical scenario.
    One things came to my mind after reading this and might have been discussed in the comments above but I would like to mention it again.

    A person can think what If I Invest those 70000 saved?
    Calculating at a rate of 9%(fds etc) and 16%(pure equity) for seven years the amount roughly doubles and triples respectively.
    Still you lag lot behind the difference in the two scenarios.
    So a bad deal to pay in black.

  42. rohit

    if investor has paid stamp duty while buying house from the owner and now he is selling it so does the buyer have to pay stamp duty again


    Dear Manish

    We all get involved in Real Sector at least once in a life time and i can bet that no one can say that he/she even know the terminologies used in real estate sector related documents. Its my personal experience in which from the very starting (Token Money) i insisted on transactions through cheque mode only so that i can have some proofs of payment because builder is the last person whom middle class person will trust. but it becomes very difficult for me to find out the property where you can purchase a flat with 100 % white money. Somewhere ratio of black:white was 40:60 somewhere it was 30:70. Builder strictly deny to take black money portion (cash) into white money mode. Irony is that , middle class salaried person arrange down payment money then we convert our hard earned super white money into black money. As few readers told here also jantri rates are applicable so one can not buy that property below applicable jantri rates in that circle.In my case , i increased the paper amount by mentioning extra work of 2 lacs. On stamp duty , extra work amount was not considered. At the time of selling also , there are agents who increased the paper values by some ways i dont know.
    So first thing,
    1. One person want to buy a flat through white money mode only : Very difficult to find out such property / Builder.
    2.) Our hard earned white money get converted into black and we dont get papers of same amount also
    3.) Middle class always remain at receiving end
    4.) Most of Terminologies are still unclear to me

  44. abhishek

    Hi manish. I need to talk to u urgent for some suggestions. Kindly pass me ur phone no if possible. I have also messaged u on FB. kindly check ur other folder beside the inbox.

  45. Ankit

    The problem is that we have to do a part of transaction in cash, Just to give you an example someone purchased a under construction property in CLP mode. And just when he was about to get the possession he decided to sell it off. Now the total amount paid during say 4yrs was 35Lac and current property price is 60 lac. Now the registry will be done on 35 lac then the seller has to accept the remaining 25Lac in cash. Is there a way to get this also in White?
    Second if he accept 60 lac and then buy another property or 2 property with 60Lac then Is he still liable to pay tax?

  46. Abhijit

    Hi Manish, thanks for the article.

    Let me have your comments on my case.
    I am about to finalize a deal for plot & home loan has been sanctioned in principle, now my builder has asked something very unusual….he told me that the home loan will be disbuesed in your account & you have to give me that money by cash.

    I haven’t heard anything like this before, I am strictly feeling that I should not do this at all. But how come Bank guys will be okay to disburse the amount to my account?

    Let me know, thnx

  47. Need help

    Hello guys,
    Nice article Manish & it is helpful to understand BLACK things. I understand 25-30% black is norm these days & I can’t avoid it however with the recent conversation with the developer he is asking to do something very different than above comments/article.

    I have finalized a deal of plot purchase with a developer for 22 Lacs which comes around 1750/SFT and now I have arranged for 25% (5.5 Lacs + Regi) of the down payment & already applied for 75% of home loan & things are positive for the same.

    Eventually I came to know that the current base / govt rate is 1200 & developer wants a SALE DEED at the rate of 700/SFT. Now I think it is a problem….

    Above that he told me that I will receive your 75% home loan amount directly to me & then I will give you a cheque & then you have to come back with the cash for the same amount.

    I am not able to understand what to do on this? Is it a big problem for me? Or it is done normally & is a normal practice? Is it going to be a problem for me?

    The plot is very nice & I liked it a lot & don’t really want to cancel the deal because of this…..your timely advice will be very helpful to me….

    Thanks in advance..

  48. Aditya

    I understood this verry clearly now but I want to point out that no one would show the value of the property at the actual cost while selling. They themselves would show it valued less. Now its actually 51lakhs, They can show it 42 lakhs…and take the remaining 10lakhs in black the cycle continues..
    Please correct me if I am wrong. Your valued comments are welcome.

  49. Krishna

    Let us assume that official price (as per registration department) is Rs. 60,00,000/- at the time of selling. This amount only will be considered for computing capital gains tax even if the white amount is shown as less than Rs. 60,00,000/-. Then, the seller has to pay capital gains tax on Rs.30,00,000/-(if bought in black) instead of on Rs.20,00,000/- (if bought in white). Therefore, what Mr. Manish says may still be valid.

  50. John

    Hi Manish,
    Excellent article.
    More than the buyers desire to save reg/stamp charges, its the sellers urge to avoid capital gain taxes that fuels this practice.
    Making sellers aware of Capital Gains Tax saving options(nhai/rec) and making those more attractive could lead to more ‘white’ transaction in future.


  51. Neel Patel

    Hi Manish,

    For example say if I am selling my property at 3 crores, but the seller insists on doing the registration at the circle rate which is 1 crore. So on paper, the property is 1 crore but the market rate and the transaction is @ 3 crore.

    Now there are two situations:
    1. Buyer pays me 1 crore in cheque and 2 crore in cash.
    2. Buyer pays me 3 crore in cheque.

    What would be implications for me and for the buyer in both of the above situations? Can I show entire 3 crore as my capital gains in both the above situations? I want everything in white and want to pay tax, but not finding buyers who wants to pay full white.

    Your views appreciated!

    • If you register the property at 1 crore and take the money in cash ,then your PROperty cost price is 1 crore, so if you sell the property in 4 crores in next few years, your official profit will be 4-1 = 3 crores and you pay tax on that amount !

  52. sanman

    hi, on the other side I have a question. What are the tax implications for the buyer who is investing as white for the registration and stamp duty of the property. For ex, the buyer can’t undervalue the property and has to minimally pay the white part for showing on the govt. registration/records. Whether there will be any issue for this white money in terms of his source of income? How is this taken care by the governance? (does this matter if the investment is huge.. ?)

  53. Arpit Kumar

    As long as the circle rates in all cities/towns stay SUPER LOW (as they are now), every buyer and seller will try to avoid paying taxes and stamp duties.

    And (in case 2) if you invest the 70000 amount somewhere for 10% (compounded annually), then after 7 years you will make around 340000 [70000 x PVIFA(10%,7 years)]!!! So that will compensate the long term loss of 342000 in case he has to sell the house for full white after 7 years.

  54. Fred

    Quite informative Manish. I was ignoring most of these things till now. I have a question which might sound a bit silly. What is the best way to get the circle rate in a given city?

  55. antony

    As per my experience searching properties to buy in bangalore, 95% sellers want some part to be paid in cash. In bangalore, there is a guidance value fixed by govt for every location. Properties cannot be registered below guidace value. Seller wants to show sale value exactly equal to/slightly above guidance value, and the remaining amount they want cash.

    For example, if guidance value for a particular locality is Rs.1000 per sqft, and market price is Rs.2000 per sqft. Here, if plot measures 1200 sqft, then govt value for plot is Rs.12 lakh. But market price and total transaction value is Rs.24 lakh. So, now seller insists that property be registered for Rs.13 lakh value only, which is rs.1 lakh more than govt guidance value, so legally possible to register. Seller insists that remaining Rs. 11 lakh be paid in cash. And buyer has to pay the 7% registration cost only for Rs.13 lakh. They refuse to register property for whole Rs.24 lakh. They will not sell to you, if you insist on registering for whole amount.

    This is because they want to avoid the 30% capital gains tax on profit from sale. It is the high capital gains tax which is responsible for black money, not the stamp duty/registration cost of 7%.

    The situation is so bad in bangalore that it is impossible to buy property with complete white money. Not all properties will suit your requirement, location, and budget and very few have proper documents, and those that match your requirement, location, and budget and have clear documents will be few only, and those few property sellers inisit on huge black component. So, situation is bleak for those who have white money only.

    But black money has a lot of problems too. If it is white money, you can easily deposit it in bank account and earn meagre interest without fear. But if you have black money, it has to be kept at home, which is a risk, and if there is a IT raid, you will lose all of it and also pay additional penalty.

  56. antony

    The black money situation is very bad in India. Govt claims they will bring back black money from foreign bank accounts, but in reality 1000 times that amount of black money exists here in India itself. All the black money is going into real estate.

    The rich land owners/builder demand almonst 40% to 50% in cash; otherwise, they are not willing to sell. The poor middle class pay cash component and make their hard-earned white money black. This benefits the seller/builder and helps him avoid capital gains tax. So, rich become richer and poor become poorer

    Govt is simply not interested in tackling black money. They only talk about black money during election time. Govt should reduce capital gains tax to reduce black money circulation.

  57. Simant

    The article and all the various scenarios presented in the comments seem valid .. but when push comes to shove, in case someone is offering the same deal in both – completely white & white with black component – which one would you go for ?

    I am a salaried guy with complete white liquidity so I would go for the 100% white situation .. would love to hear what others have to say.


  58. laxmi mallick

    I payed rs 1o lac to a developer in Navi Mumbai in Cash . The developer give me receipt .

    Is the amount is treated as black money.
    As Mumbai police circular , they honour the receipt of payment

    Laxmi Mallick
    101 Suman Apt,Plot 120 Sector 21, Nerul 400706

  59. Manoj

    Hello Manish,
    Your views on this matter please.
    I am an NRI wanting to sell some ancestral property held jointly with resident Indian siblings. We all would like to conduct the entire transaction in cheque, declare income, pay taxes, etc.

    The buyers though insist on registration at circle rate which is 30% lower than the market rate. And, pay 30% in cheque and the remaining 70% in cash.

    Can I show the entire amount (received in cheque+cash) as capital gains?

    Thank you


    • Manoj

      I think this qualifies for a discussion with a good CA . If you are paying in CASH , then you cant show it legally because there is no proof . If you want, I can connect you to a good CA and you can take it forward with him, he would charge a fees for that!


  60. bharat

    I am buying a property(floor) costs 41 lacs. and I paid 35 lacs in cash contracted on stamp paper.Circle rate is 16 lacs. At the time of registry I will pay 6 lacs in cheque.
    Will I pay registry and stamp duty on 6 lacs or 16 lacs. And if it will pay on 16 lacs then how can I show 10 lacs on the time of registry. Can I show it(10 lacs) cash at time of registry behalf of that byana agreement.

  61. bharat

    Than how can I show 10 lacs legally. or I have to register it on circle rate but show only 6 lacs legally means I show that I buy property in 6 lacs . but I pay the stamp duty etc on 16 lacs.

  62. Prasanna

    Anyone know how to stop this! Boycott the purchase…. impossible! Best thing is to track the purchaser’s transactions. I am sure he/she would have withdrawn large amount of money to give it cash… take this into account along with the loan gotten. If the discrepancy is found then don’t harass the buyer, but grill the seller.

  63. Vishal Kumar

    The people who do not have any cash in hand are facing tough time for buying a house due to cash component.

  64. faruk

    Why shall i will take white when I sale in future I will show value 70 L and will take 20 Cash ?
    2ND 98% builders,resalers ask cash >40% only Jantri is white no other option …

    Good to Talk and good on paper but not practical every where

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