Real Estate & 'Token Money': The Hidden Risks of Cash Advances for AY 2026-27

In the high-stakes world of Indian real estate, "Token Money" (also known as Bayana or Earnest Money) is the traditional way to solidify a buyer's intent. Because these amounts are often relatively small compared to the total property value, many buyers and sellers assume that handling them in cash is a harmless procedural convenience.

However, for Financial Year 2025-26, the Income Tax Department's scrutiny of property transactions is at an all-time high. The automated link between the Sub-Registrar's office and the Annual Information Statement (AIS) ensures that any property deal is flagged. If the department discovers that ₹20,000 or more was handled in cash at any stage of the deal, the resulting penalties can effectively wipe out the seller's profit or the buyer's savings.

1. The ₹20,000 Trigger: Section 269SS

Most taxpayers know Section 269SS for its restriction on "Loans," but a critical amendment in 2015 expanded its scope to include any "Specified Sum."

• Definition: "Specified Sum" means any sum of money receivable, whether as advance or otherwise, in relation to the transfer of an immovable property, whether or not the transfer takes place.
• The Rule: You cannot accept ₹20,000 or more in cash as an advance for a property deal.
• The Penalty: Under Section 271D, the penalty for the Seller (Recipient) is 100% of the amount received in cash.

2. The Repayment Trap: Section 269T

Property deals often fall through due to documentation issues or loan rejections. If the deal is cancelled, the seller must return the advance.

• The Prohibition: If the advance being returned is ₹20,000 or more, it must be paid back via a bank transfer.
• The Penalty: Under Section 271E, the penalty for the Seller (the person returning the money) is 100% of the amount repaid in cash.

The Horror Scenario: If a seller accepts ₹1 Lakh cash as token money and later returns it in cash because the buyer backed out, the seller has violated two sections and could potentially owe the government ₹2 Lakhs in total penalties for a deal that never even happened.

3. Why the Department Tracks This

Property transactions are the primary vehicle for generating and consuming unaccounted wealth. By restricting cash to ₹19,999, the government ensures that the true transaction value is recorded in the banking system.

The department tracks these through:

• SFT Reporting: Registrars report all property transactions above ₹30 Lakhs.
• Source Verification: When a buyer shows a bank withdrawal for a part-payment, but the seller's bank record doesn't show a corresponding deposit, the department immediately probes the "Cash Component."

Legal Reference: Transfer of Immovable Property

The law is deliberately broad to ensure no loopholes exist for different types of land.

Section 269SS, Explanation (iv)— "Specified Sum" means any sum of money receivable, whether as advance or otherwise, in relation to the transfer of an immovable property, whether or not the transfer takes place.

This means even if the "Bayana" was for a verbal agreement that was never registered in court, the penalty still applies if the department identifies the cash movement.

Common Mistakes with Token Money

1. Thinking "Only the Registered Amount" Matters: Some sellers take ₹5 Lakhs as cash "Token" and only show the bank payments in the Sale Deed. If the buyer is ever audited and admits to the cash payment to justify their "Source of Investment," the seller is hit with the 100% penalty immediately.
2. Cash for "Furniture or Fittings": Sellers often try to bifurcate the deal, taking cash for "furniture" to keep the registered property value low. The department often treats these "side agreements" as part of the "Specified Sum" for the property transfer, triggering Section 269SS.
3. Returning Cash in Cancellation: In a moment of panic during a cancelled deal, sellers often rush to return the cash to avoid legal trouble with the buyer. This "speedy return" in cash is exactly what triggers the Section 269T penalty.

Conclusion

To simplify your property transaction and protect your legal title, adopt a Zero Cash Policy. Every rupee of the advance, regardless of how small, should be paid via a trackable digital channel (UPI, NEFT, or Cheque).

If you are a buyer, do not agree to a seller's request for "Cash Token" to "save on stamp duty." You risk being unable to prove your cost of acquisition later, leading to higher Capital Gains Taxes. For more on how to audit-proof your wealth, see our guide on Record Keeping & Audit-Proofing for Homeowners.