Rampant use of Black Money for property dealings

black money in India

Making property payments through black money has become a trend. The ratio of cash to cheque payments are in varying proportion. The only way this trend can be stopped is by the income tax authorities cracking down on black money in real estate.

The main question is “Is there a political will to unravel black money involved in property dealings? Is IT department competent enough to solve these problems? ”. The tax authorities needs to be on their toes to decrease the usage of black money. Certain measures needs to be taken by IT dept like conducting raids and making it illegal to hold more then certain quantity of cash.

The real estate Ponzi scheme intake is traditional social class professionals who otherwise in their lives wouldn’t have any contact with black money. The main reason why rental yields are going down whereas land prices are increasing is due to this ponzi schemes.  Real Estate is such a topic that it always comes up during long conversations. But dealings in real estate are often a nightmare for salary earners.

The reason that real estate transactions are a nightmare for everyone is the money component involved within the transactions. Obviously the first part of the nightmare starts with the dealing with the brokers, agents, builders and every other peripheral person involved in the transaction. One conversation with the real estate dealers is enough to put one off buying or selling property in India. The trend in every part of the country is part of the real estate transaction takes place in cash. Hence a salaried professional wanting to buy a property has to cough up cash and that would mean several hundred trips to ATMs. The same applies to a person selling property, as the buyer who is invariably one who has sold a property and has got cash from sales wants to reinvest the cash.

Case Study:

Suppose Regan wanted to buy a property in Mumbai and his budget was about Rs.90 lakh. Regan researched on Realbuildr.com and zeroed down on a property. He soon discovered that he needed to pay 6% stamp duty and 1% registration fees based on Maharashtra government land laws. So total amount of taxes to be paid was 7%. So 7% of 90 lakhs is Rs.630000, Regan was in shock after finding out amount of taxes he was looking for a way to decrease the amount of taxes.

After few days, Regan had a chat with builder. Builder gave an idea to Regan which was very tempting. The idea was to decrease the amount on contract that was made so that Government authorities levy tax on the decreased amount and rest of the payment be made in cash. The final amount decided for agreement value was Rs.60 lakhs. So Regan saved Rs.210000.


In this way most transactions are carried out in India with the intent of saving the taxes levied by the Government. In 2013 UPA government under Manmohan Singh decided to abolish stamp duty to solve problem of corruption but the bill was never passed. There are 2 varying factors at play which decides the stamp duty. One is circle rate and the other one is market rate.

The circle rate is the one that’s decided by the Government authorities and it varies from different area. Often this rate does not represent the market realities and is usually outdated. The price of the land that seller sells should be above the circle rate. But market rate is much higher than circle rate and due to this mismatch the issue of fraudulent ways of payment arises to save taxes.