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Larissa Fernand

Cash payment decreases your capacity to borrow
If the seller gives you a quote of Rs 1.5 million and you opt for a loan to finance the deal, most housing finance companies will put up just 85 per cent of the amount. That means Rs 2,25,000 will be your look out.
Now, if the seller insists that Rs 3,00,000 come in as cash with just Rs 1.2 million on cheque, then you will have to put up Rs 4,80,000 since the housing finance company will finance just 85 per cent of Rs 1.2 million which amounts to Rs 1.2 million. This is excluding all the documentation fees for the loan.

It is possible to reverse the transaction
Should a problem arise whereby you can't go ahead with the deal, then you can cancel the entire transaction for a fee. If you have been dealing in cash, there is obviously no record and you may end up forfeiting the entire amount. The undeclared amount is usually given upfront with the booking amount but with no record that the money has changed hands.

Undeclared cash transactions involve larger capital gains tax
Let's assume that you buy property worth Rs 1.5 million. Years down the road if you decide to sell it for Rs 2 million, then capital gains will be calculated on Rs 5,00,000. If the seller had insisted that you declare the transaction as just Rs 1.2 million, then the capital gains, when you decide to sell, will be calculated on Rs 8,00,000.

A huge undeclared amount can get the tax men sniffing at your door
Let's say that you have set your sights on this palatial apartment in a prime location in Mumbai offering you a fabulous view of the sea. It's going to set you back by Rs 10 million. The hitch: the seller has no intention of declaring Rs 2 million to the authorities. So the papers are drawn up for Rs 8 million.
Section 37(I) of the Income Tax Act states that properties where the transaction cost is Rs 7.5 million or more (Mumbai), Rs 5 million (Delhi), Rs 2.5 million or more (Calcutta, Bangalore, Chennai, Ahmedabad, Pune) and Rs 2 million and above (other cities) is to be brought to the notice of the income tax department.
If the authorities feel that the property has been undervalued, then they can auction it to the nearest bidder. On record, since you have just paid Rs 8 million, that is all that will be reimbursed. You lose the balance Rs 2 million which you have already paid to the seller.

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