The Biggest Mistake NRIs Make When Selling Property in India
In India, it is not a hidden fact that in almost every deal people ask for some part of the payment in cash, also known as black money. While some may feel like they are saving on taxes or stamp duty, it is ultimately a lose-lose situation for both parties involved. In this article, we will explain why this is the biggest mistake NRIs can make when selling property in India.
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Let us start by explaining the seller’s part. Most NRIs do not reside in India. Therefore, if someone pays them a significant amount of cash, such as 30-40 lakhs, and they do not have a reliable network of relatives or someone who can handle the cash on their behalf, it becomes challenging to handle such a large amount. In most cases, they will deposit the cash in their bank account. This is where the biggest mistake lies.
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Once you deposit the money in the bank, it becomes your “on record” money. Since the cash is from unknown sources, you cannot tell the income tax department that you have taken a part of the payment in black money for the sale of your property. Therefore, whatever income you put in the bank account becomes taxable at the highest tax rate. Additionally, there will be a penalty as well.
For instance, If you deposit 40 lakhs in cash, the government will almost certainly issue a notice because the monitoring systems in place track high-value transactions. The bank will report the transaction to the Reserve Bank of India and the income tax department. Once you receive the notice, you will have to explain the source of that income. Since you are an NRI and not doing any
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business in India, you cannot explain the source of the income. Therefore, it becomes an undisclosed income from an undisclosed source, which is taxable at the highest rate of 33%.
Moreover, you will also be penalized for such income. The penalty can be up to 300% of the tax amount. For example, if you are charged 33 lakhs as tax on one crore, you will have to pay an additional 99 lakhs as a penalty. Therefore, if you deposit one crore, you will end up paying more than one crore as tax and penalty.
Some people may think that their CA, tax consultant, or lawyer has a high approach and can handle the situation. The authorities in Bangalore issue all notices, and no intermediary has the power to intervene. Therefore, it is always better to complete your sales transaction as white money because that is your hard-earned money.
In conclusion, taking a part of the payment in black money is the biggest mistake NRIs can make when selling their property in India. It can lead to hefty penalties, legal procedures, and ultimately, paying more than what you would have paid in taxes. It is always better to stay on the right side of the law and complete your transactions as white money.