Property Transactions and Income Tax Rules in India: Compliance Essentials for FY 2026-27

Property transactions in India have long been under the close watch of the Income Tax Department, given their high value and potential for tax evasion. With new thresholds and reporting requirements coming into effect from FY 2026-27, buyers and sellers must be aware of the rules governing property deals, cash payments, and banking transactions.

This article provides a comprehensive overview of the updated framework, penalties for violations, and practical compliance tips.

Reporting Under Statement of Financial Transactions (SFT)

The Income Tax Department mandates reporting of certain property transactions through the Statement of Financial Transactions (SFT). Sub‑Registrar Offices are responsible for filing these reports whenever property deals cross specified thresholds.

• Threshold Limit: From FY 2026–27 onwards, any purchase, sale, gift, or Joint Development Agreement (JDA) involving property valued at ₹45 lakh or more (or where the stamp duty value is ₹45 lakh or more) must be reported.
• Earlier Limit: The previous threshold was ₹30 lakh, meaning the scope of reporting has now widened significantly.
• Details Reported: Buyer and seller names, PAN numbers, property value, stamp duty value, and registration details are all captured in the SFT.

This scheme ensures that high‑value property transactions are transparent and traceable, reducing the scope for unreported income.

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Cash Payment Restrictions: Section 269ST

Cash dealings in property transactions are strictly regulated under Section 269ST of the IncomeTax Act 1961. Section 269ST of the Income Tax Act, 1961, is a restrictive provision introduced to curb black money circulation and encourage digital banking channels.

• Prohibition: No person can receive or pay ₹2 lakh or more in cash in relation to a property transaction.
• Penalty: Violations attract a penalty equal to 100% of the cash amount received, imposed under Section 271DA.

This provision effectively eliminates large cash dealings in real estate, pushing parties toward banking channels for safer, traceable transactions.

Advance and Token Payments: Section 269SS

Section 269SS of the Income Tax Act, 1961, strictly regulates the acceptance of advance or token money, legally termed a "specified sum" in real estate dealings. Under this provision, no person is permitted to receive an advance or booking amount of ₹20,000 or more in cash for the transfer of immovable property, regardless of whether the sale is ultimately finalized. Any transaction meeting or exceeding this threshold must be executed through banking channels, such as account payee cheques, drafts, or electronic modes like NEFT, RTGS, or UPI. Non-compliance places the entire legal liability on the recipient, attracting a severe penalty under Section 271D equal to 100% of the cash amount received.

Key Difference: Section 269SS vs. Section 269ST

While both sections carry a 100% penalty on the receiver, they govern entirely different limits during a property sale:

• Section 269SS sets a microscopic limit of ₹20,000 specifically targeting the advance, token, or booking stage of a property deal.
• Section 269ST sets a broader cap of ₹2,000,000 (₹2 lakh) on the total aggregate cash received for the entire transaction or in a single day.

Therefore, you cannot take a ₹50,000 cash advance (violates 269SS), nor can you take a ₹2.5 lakh cash payment at the final registry (violates 269ST).

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Monitoring of Bank Deposits

While there is no legal cap on how much money an individual can keep in a bank account, the Income Tax Department closely monitors large deposits to ensure financial transparency. Substantial inflows, especially cash deposits of ₹10 lakh or more in a single financial year, often attract scrutiny or information requests from tax authorities. This oversight helps verify that funds used in high‑value transactions such as property purchases are legitimate, properly documented, and traceable through banking channels, thereby discouraging unaccounted cash circulation in the real‑estate sector.

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Cash Withdrawal Rules

Draft rules propose reporting requirements for large cash withdrawals:

• Threshold: Withdrawals exceeding ₹10 lakh in a year will be reportable.
• Impact: This discourages excessive reliance on cash and aligns with the broader push toward digital and banking transactions.

Example: Sale of Property

In a practical scenario, Mr. A sells a property to Mr. B for ₹50 lakh, triggering mandatory reporting under the Statement of Financial Transactions (SFT). The Sub‑Registrar records and submits the transaction details to the Income Tax Department, which then cross‑verifies the information against PAN records and other financial data. This automated process ensures that high‑value property deals are systematically flagged and verified, leaving minimal scope for concealment or non‑compliance.

This example illustrates how property deals are automatically flagged and verified, leaving little room for concealment.

Compliance Checklist for Buyers and Sellers

To avoid penalties and ensure smooth transactions, parties should follow these compliance steps:

1. Use Banking Channels: Always make payments through cheque, RTGS, NEFT, or UPI.
2. Avoid Cash Transactions: Never accept or pay ₹2 lakh or more in cash.
3. PAN Details: Ensure PAN information is updated and correctly reported.
4. Advance Payments: Keep token amounts below ₹20,000 if paying in cash; otherwise, use banking modes.
5. Monitor Deposits and Withdrawals: Be mindful of the ₹10 lakh annual threshold for both deposits and withdrawals.
6. Report Property Income: Disclose property‑related income accurately in your Income Tax Return (ITR).

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Legal Sections at a Glance

These specific tax provisions are designed to increase financial transparency and penalize the circulation of unaccounted money

• Section 269ST: Prohibits cash transactions of ₹2 lakh or more in cash from a single person in a single day, for a single transaction, or on a single occasion.
• Section 271DA: Imposes a 100% penalty equal to the exact cash amount received in contravention of Section 269ST.
• Section 269SS: Restricts accepting loans, deposits, or property token/advances over ₹20,000 in cash.
• SFT Reporting: Requires property registrars to report purchase, sale, or gift transactions of ₹45 lakh or more under the Statement ofFinancial Transactions (SFT) framework.

These rules reflect the government’s ongoing efforts to curb black money and promote transparency in real estate. By tightening thresholds and expanding reporting requirements, the Income Tax Department ensures that property transactions are fully traceable. For genuine buyers and sellers, compliance is straightforward: rely on banking channels, maintain proper documentation, and disclose income honestly.

Property transactions in India are now subject to stricter scrutiny, with enhanced reporting requirements and severe penalties for cash dealings. From FY 2026-27, the ₹45 lakh threshold under SFT, combined with restrictions under Sections 269ST and 269SS, marks a significant step toward transparency. Buyers and sellers must adapt to these rules by embracing banking modes, keeping PAN details updated, and avoiding cash transactions. Compliance not only prevents penalties but also builds credibility in one of the country’s most vital sectors.

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