If you receive a quote from a property owner of Rs. 1.5 million and ask some financial institute to cover the sum, you will not get more than 85% of the total amount. Therefore, you will have to arrange Rs. 225,000.
But, if you find that the seller is insisting on at least Rs. 300,000 in cash and Rs. 1.2 million in check, you will have to arrange an additional Rs. 480,000, as you are not going to get more than 85% of Rs. 1.5 million, which is only Rs. 1.2 million. Moreover, this does not include the documentation and processing cost.
Can you reverse the transaction?
In case of a problem you can cancel the entire deal by paying a transaction fee. In case of a cash transaction, however, you may lose the entire amount, as there was no record. This undeclared amount is normally paid along with the booking amount but without any valid record of the transaction.
You will have to pay bigger capital gains tax on the undeclared cash dealings. For example, you bought a property by paying Rs. 1.5 million. After few years when you plan to sell the property, say, at Rs. 2 million, the capital gain is to be calculated on Rs. 500,000. But if the seller while buying insisted on declaring the property worth Rs. 1.2 million, you will have to pay the capital gain tax on Rs. 800,000.
If the undeclared amount is significantly high, it will alert the income tax department. Let's assume, you decide to buy a lavish Gurgaon apartment in a prime location, which will cost you Rs. 10 million, but the seller insisted on declaring the cost to be Rs. 8 million and, accordingly, the documents are prepared.
According to the Section 37 (I) of the Income Tax Act, Income Tax Department must be made aware of any property-related transaction worth Rs 7.5 million or above for Mumbai, Rs 5 million or above for Delhi, Rs 2.5 million or above for cities like Ahmadabad, Bangalore, Calcutta, Chennai, and Pune, and Rs 2 million and more for other Indian cities.
If found to be undervalued, the authorities may auction the property to the closest bidder. For the above mentioned property, as you have only paid Rs. 8 million on record, you will be reimbursed just this amount. The balance Rs. 2 million already paid to the seller will be forfeited. Learn more various topics on Real estate India on MastGhar.com