Black Money In The Real Estate Sector- An Analysis of The Problems Of Undervaluing Immovable Property And The Government Implementations To Curb It

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Anushree Poddar and Ankita Manchanda*



The Real Estate Sector in India is infamous for its black money transactions. While the government has passed various laws to curb this practice and has significantly been able to do so in the primary real estate market,the secondary real estate market continues to lack transparency. The buyer and the seller of a property often come into a mutual agreement for the purpose of tax evasion by undervaluing the property. This leads to huge losses of tax revenue for the government. The aim of this paper is to explain this prevailing practice and analyze the rationale behind the measures that have been taken by the government to check this practice. In a nutshell, the paper gives a thorough understanding of the problem of black money transactions in the real estate sector and how it has been dealt with over time with the help of implementations like Demonetization, Real Estate Regulation and Development Act 2016, reformation of Section 50C of Income Tax Act 1961, amendments in the Benami Transaction (Prohibition) Act of 2016 along with certain statutory provisions contained in the Registration Act 1908 and the Indian Stamp Act 1899.



 The Real Estate Sector provides a major avenue for the investment of black money in India. The prices of land and buildings are determined by the market forces of demand and supply. However, the demand for immovable properties usually far supersedes the supply. This, in turn, creates an inflationary market, characterised by high degrees of speculation. Vendors and buyers of immovable property would often come into a mutual agreement to understate the consideration in the instrument of transfer such that a substantial portion of the consideration is paid using unaccounted money, also known as ‘black money’. Due to the unrecorded nature of this ‘side transaction’, the vendor would save the charges on capital gains on the undeclared portion of the sale proceeds and the buyer would save on stamp duty and registration charges while simultaneously accommodating unaccounted funds.[1] The government has made tremendous efforts in regulating the real estate market and a certain degree of transparency has become inevitable. Government implementations like Demonetisation, Real Estate Regulation and Development Act 2016 (RERA), reformation of Section 50C of Income Tax Act 1961, amendments in the Benami Transaction (Prohibition) Act of 2016, together with various statutory provisions contained in the Indian Stamp Act 1899 and Registration Act 1908 and state legislations to prevent undervaluation of assets create various checks and balances to minimise the pumping in of black money into the real estate sector. The paper aims to first highlight why undervaluation of immovable property is problematic, briefly analyse the effect of black money in real estate transactions on the economy and subsequently probe into how the aforementioned government implementations seek to curb the menace of black money in the real estate market.



 While the Government has, time and again, made regulations to curb the channelisation of black money for acquisition of assets in the real estate transactions in the primary real estate market, the secondary real estate market continues to lack transparency. Herein, a distinction can be drawn between Primary/Sale-by-Developer Real Estate Transactions on one hand and Secondary/Resale Real Estate Transactions on the other. Primary Real Estate Transactions consist of newly launched properties from developers. Primary market properties require less expenditure on renovation and refurbishment and come with high potentials for capital appreciation which most real estate speculators look for.[2] The driving force behind the purchase of primary market properties is that these properties can be bought from developers at a low price and can be sold later in the secondary market at an appreciated price. The Secondary Real Estate Transactions, as opposed to Primary Real Estate Transactions, consist of previously owned properties in established localities. Secondary properties constitute the bulk of the volume in residential property transactions. Any sale of immovable property, whether in the primary or the secondary real estate sector, must be executed through a sale deed.

Section 54 of the Transfer of Property Act, 1882 lays down that a sale can be executed only through a registered instrument.[3] The case of Suraj Lamp and Industries (P) Ltd. v. State of Haryana and Anr.[4]  further held that the Agreement to Sell, General Power of Attorney and Wills do not qualify as registered instruments for the transfer of property. It recognised that parties often avoid executing a Deed of Conveyance “to avoid payment of stamp duty and registration charges on deeds of conveyance, to avoid payment of capital gains on the transfers [and] to invest unaccounted money”. It concluded that Sale Agreements, General Power of Attorney and Wills do not convey title to immovable property and will not be treated as concluded transfers; the immovable property can only be transferred through a registered Deed of Conveyance.[5] Thus, the possibility of avoiding the payment of stamp duty, registration charges, taxes on capital gains and investing of black money by non-execution of a Deed of Conveyance was ruled out. However, the value of assets sold in sale deeds was often undervalued in an attempt to avoid the aforesaid levies.

The rationale behind undervaluation of a property in a sale deed was that sellers of the immovable property had tremendous possibilities to make huge gains by selling their assets at a price much higher than the cost of acquiring the asset because of the high demand for real estate in India and consequent inflation in the real estate market. Such gains are called Capital Gains. The generic understanding of taxable Capital Gains is that it is the sale consideration reduced by the cost of acquisition.[6] Over a period of time, the parties to a transaction started understating the value of the properties in the sale agreement to evade the tax levied on capital gains. A substantial part of the consideration is paid in cash to reduce the tax liability of the seller. A lower property value gives a lower difference amount or in other words, lower taxable capital gain for the vendor. The problems arising due to such tax evasions are two-fold. Firstly, it causes a loss of revenue to the government. Secondly, it allows the buyer to invest their  black money.

When an individual enters into a sale agreement for a property, he is mandated to pay stamp duty to the government. According to Section 3(2) of the Indian Stamp Act 1899, stamp duty is chargeable on “any instrument for the sale, transfer or other disposition.”[7]  The case of Kunwarpal Singh and Anr. v. State of Uttar Pradesh and Ors. clarified Section 29(c) of the Indian Stamp Act 1899 which states that the liability to pay stamp duty for conveyance is on the grantee.[8] The judgement held that “the language used in the section is very clear and this provision makes it obligatory upon the vendee to pay the stamp duty.”[9] To that effect, it further held that any deficiency in the stamp duty paid will also have to be accounted for by the vendee.[10] Stamp duty varies from state to state in India and is collected by the state governments to validate the registration of a document in favour of a vendee so that immovable property can be conveyed.

After paying stamp duty, a sale deed is required to be registered as per The Registration Act, 1908 with a sub-registrar from the jurisdiction of the place where the immovable property is situated.[11] This is done to record the execution of the document, certify its legal validity and ensure that the ownership is transferred to the right owner. Section 17 of The Registration Act,1908 specifies documents that need to be registered compulsorily.[12] Though the Registration Act does not explicitly make the registration of a sale deed compulsory, Section 17(b) makes registration compulsory for “instruments which purport or operate to create, declare, assign, limit or extinguish”[13] any right, title or interest in immovable property. The case of M/s. Latif Estate Line India Ltd. v. Mrs Hadeeja Ammal established that “a sale deed is a document which transfers ownership in the property. The transfer is complete and effective upon the completion of registration of the sale deed.”[14] To this effect, sale deeds do come within the purview of Section 17(b) of The Registration Act, 1908. The parties in a sale transaction would undervalue the property so that the net stamp duty and registration amount chargeable on the consideration is lower for the vendee. Undervaluing a property became mutually beneficial for both the vendor and the vendee. This process of evading taxes becomes a source of huge revenue losses for the government.

Another problem that arises due to undervaluation of the property in a deed is that the consideration is partly paid through unaccounted cash. The amount by which a property is undervalued is paid by the vendee to the vendor in cash. By doing this, the vendee is able to use black money by indirectly investing it, to acquire assets. Evasion of taxes leads to the generation of black money and the attempt to invest this black money becomes a reason to evade taxes yet again; this process continues in a cycle. Piling up of black money has far-reaching economic problems for the Indian economy. In a nutshell, hoarding of unaccounted wealth in the form of black money causes inflation in the economy.

“Since the concealed income goes to enhance the wealth, tax evaders carry on huge transactions in the black market, pile up stocks of goods and thus bring about artificial scarcity in the open market resulting in higher prices.”[15] Black money has a causal connection with inflation. People hoard black money which is not spent readily consequently, the money supply has to be increased in the economy to meet genuine credit requirements. Besides this, since people are already evading taxes and collecting black money, the government faces losses in tax revenue.

“Since tax revenue does not grow fast enough to match the developmental and non-developmental expenditures, the government resort to deficit financing which accentuates inflationary pressures further. Thus, black money reduces the flexibility of the tax system and undermines its equity.”[16]

Real estate is the go-to avenue for investors of black money and Indians refuse to let go of the use of cash while transacting, especially when it comes to real estate.[17] The severe problems that arise out of tax evasion and black money transactions in the real estate sector have led the government to take various measures over time, to curb this menace arising out of large scale undervaluation of real estate and to bring unaccounted money  within the tax net.



Moving on to the various measures taken by the government to control the huge parallel economy in the real estate market, guided by the apparent urbanisation growth and the consequent need of housing, the Government’s Pradhan Mantri Awas Yojana scheme in 2015 proved to be a silver lining for the urban poor homebuyers. It aimed at “providing affordable housing”[18] by giving them substantial interest subsidy as well, with the assumption of flooding in of funds in the deserted sector. Post this, the Parliament of India passed the Real Estate (Regulation and Development) Act, 2016 (RERA), with a primary objective to protect the interests of home buyers by establishing an adjudicating mechanism and to enhance accountability in the real estate sector. RERA intended to create a more equitable and fair transaction between the seller and the buyer of properties, especially in the primary market since home buyers claimed the real estate transactions to be heavily in favour of the developers. In order to serve transparent project-marketing and execution to its buyers, Section 3(1) of the Act made it necessary for all the “promoters of all ongoing projects which haven’t received completion certificate …  to register their project with the Regulatory Authority, within 3 months of its commencement.”[19]

RERA being a central law mandates each state and union territory to have its own Regulatory Authority and Adjudicating officers. Section 20(1) of the Act frames the rules that oversee the functioning of the Regulatory Authority, an authorised government body.[20] Other than directing or ordering appeals at the Appellate Tribunals for speedy and efficient dispute redressals, Section 35(2)(iii) of RERA empowers the Regulator to issue commissions to appoint a Commissioner or an expert to search and seize the properties/documents of builders and homebuyers who are alleged or asserted of investing unaccounted money.[21] The rationale behind this was to make the secondary market for buyers a safe space by determining the financial irregularity of the developer concerned if any i.e. whether the developer utilised the consideration received from the buyers for the same project for which they made the payment. Section 4 (2)(l)(d) of the Act aims to clamp down on the state affairs which create a cash crunch in the market, often leading to the projects being stalled. As per the provision, the developers have to deposit 70% of the amount collected from the buyer in a separate ESCROW account in a bank, such funds can only be used for construction and land cost.[22] This provision was specifically introduced to throw light on the wrongdoings committed by the corrupted builders to divert the particular funds collected from the homebuyers to other projects or for entirely different purposes.

Following the enactment of RERA, the Prime Minister of India declared Demonetisation in November 2016 with an expectation that the preventive war against unaccounted money would create a dent in the Indian real estate market, focusing on the secondary market whose transactions were mostly cash dominated by 30 to 50%.[23] Post Demonetisation, this practice was curtailed enormously because the old 500 and 1000 rupees currency notes ceased to be legal tender. This made investors stop the practice of hoarding properties to use their unaccounted money, alongside having a major positive impact on the market due to an apparent reduction in the price gap between the primary and secondary real estate markets, making all the speculative investors leave the market. It simultaneously encouraged the genuine buyers who were pushed to the side-lines to come out in large numbers with the help of the government’s pro-consumer and pro-industry initiatives.Black money in the real estate sector experienced a hefty hit as a result of Demonetisation. Post that, the GST regime was introduced in July 2017. It was widely anticipated that it would bring some transparency in the opaque environment of the real estate market. GST was implemented  with the aim “to consolidate multiple indirect taxes which were levied into a single tax such as the Central Excise, Customs and Service tax under the indirect taxes for the Central Government; and Value Added Tax, Central Sales Tax along with the others under the indirect taxes for the State Government.”[24] GST helped in easing out “the multiplicity of taxes and cascading of taxes.”[25] This cascading effect removed the concept of Input Tax Credit from the complex tax structure. ITC was an incentive for builders to reduce their tax liability by claiming credit to the extent of Central or State Tax paid on their respective purchases. Now, with the introduction of GST and the absence of their main incentive to pay their taxes, builders started resorting to making payments for their transactions in cash to escape paying taxes on these inputs and for cheaper options. Post introduction of the GST regime, given the tightened regulatory environment and speedier identification of tax evasion instances to avoid the massive influx of black money, the Councils mandated 20% as maximum procurement cap for availing ITC on Invoices which were not uploaded by the GST-registered suppliers to plug the leakage.[26] Moreover, Ready-to-move-in homes and land were exempted from the obligation to pay GST which reduced the demand for under-construction properties by buyers considerably.

Moreover, Demonetisation underpinned  by RERA, GST reforms and liberalisation of Foreign Direct Investment (FDI) forms helped in growing the confidence of  foreign investors, boosted  foreign funds and also helped to control prices by curbing cash transactions and checking speculative pricing, which increased affordability.[27] Introduction of Demonetisation and RERA further led to amendments in the original Benami Transaction Act in 2016. Since people who enter into a Benami Transaction cannot show their names due to the usage of unaccounted cash and also because they want to hide the true ownership of the Benami Property from their creditors or the banks, they tend to create fictitious names or use the names of other people for entering into such transactions. The amendments introduced intended to control all the black money transactions to guarantee that all real estate transactions were directed in the name of the actual proprietor where the consideration was paid from his assets. The anticipated result of this revision was the rapid increase in tax revenue for the government by preventing the black money from being siphoned from the system, which in the long run would help in cutting down the corruption and unfair trade practices, along with increased transparency in the real estate dealings.[28]

The overall problem of investing unaccounted funds caused the Government to suffer huge losses due to the undervalued sale transactions of the immovable properties which led to the leakage of tax revenues. Each state government has its own rules with regards to the undervaluation of assets in a sale deed. To prevent the evasion of stamp duty by the undervaluation of property and to reduce conflicts over the stamp duty, all state governments publish an area-based stamp duty rate on an annual basis depending on infrastructure and other related factors, this is known as the Circle Rate.[29] If the property is sold below the circle rate, as per Section 50C of the Income Tax Act the circle rate is assumed to be the sale price and capital gains tax is levied accordingly.

Furthermore, the stakes of evasion of the stamp duty in sales of immovable properties were also quite high. Therefore, to plug such leakage, Section 50C of the Income Tax Act was drafted by the Government and tax professionals into the sphere of income tax as a quick fix to the unaccounted money resulting out of immovable property transactions. Section 50C  mandates that stamp duty valuation will be done on the basis of a rate determined officially by the stamp valuation department instead of allowing it to be calculated on the  ‘apparent consideration’ shown by the transferor of a capital asset.[30] To explain the intention of the Legislature from “plain and unambiguous”[31] language used in the act, K.R. Palaniswamy v. Union of India held that:“it is not possible to assume any intention or governing purpose of statute more than what is stated in the plain language. … It is obvious that the provision has been introduced only to check the undervaluation thereby evading tax payable to the government and to also curtail black money.”[32]

As per the provision, if the property is sold below the Circle Rate, the Circle Rate would be assumed as the Sale Price for the same and Capital Gains Tax would be levied. Before Section 50C came into the picture, a provision in Section 52 of the Act was used, allowing the Assessing Officer to refer and assess the property under transfer to the Valuation Officer to determine its market value.[33] However, in K.P. Varghese v. ITO, it was established that Section 52(2) cannot and must not be applied to genuine transactions unless there is evidence stating the consideration declared in the sale deed as undervalued.[34] Hence, Section 52(2) could not be invoked because it required great amounts of effort for the officials to gather evidence showing the exchange of unaccounted money for consideration, which they merely found to be evident. Thus, the insertion of a deeming provision by way of Section 50C to substitute apparent sale considerations by a uniformly evaluated rate helped restrain any potential evasion of taxes chargeable on the consideration amount in a sale deed.

The valuation of immovable properties, being a critical factor from the taxation perspective, had made the lawmakers take utmost care in implementing policies that can contain the evasion of taxes while simultaneously executing laws to stop black money transactions in the real estate sector. Certain amendments were made to Section 50C of the Income-tax Act,1961 by the Finance Act, 2016 to make it as infallible as possible so that any scope for undervaluation or induction of black money is minimised. Simultaneously, the Act has also been accommodative of genuine buyer-seller concerns. In 2018, it was decided that no adjustments to be made in case the variation between stamp duty value and the sale consideration are not more than 5% of the sale consideration. After considering cases like John Fowler Pvt. Ltd. vs. DCIT (ITAT Mumbai)[35] when referred in tandem with Honest Group of Hotels Ltd. vs. CIT[36] regarding various factors like property, location and sale consideration which added subjectivity in stamp duty valuation by the approved valuer, the Judiciary and the Authorities increased the limit of variation to 10% in 2020. This was considered as a welcome move because it reduced the hardship in case of genuine property transactions where variation between stamp duty value and consideration was due to legitimate reasons and not because of undervaluation.



 In conclusion, it is essential to point out that buyers seldom realize that undervaluation of property in a sale deed is, in fact, counterproductive. While the buyer may save on registration charges and stamp duty and the seller may save on capital gains tax, it traps the buyer if he decides to sell the property after a few years. Since the market value of a property is ever-appreciating, undervaluing the property while buying it would imply a higher capital gain when the property is sold because the cost of acquisition is lower than what it actually should have been. The greater capital gain will attract a higher capital gains tax when the property is sold. Thus, an attempt to save on registration charges and stamp duty in the short-run attracts a higher capital gains tax levy in the long-run. This also defeats the purpose of speculative purchasers who invest money in the real estate sector just so that they can sell it on a later date at an appreciated value. While the government implementations have come a long way in making statutes stringent to deal with black money and tax evasions, it cannot be said that these problems have been wiped out entirely. The government’s battle to minimise its loss of revenue from taxation in sale deeds is still in play while it attempts to bring in lucidity into the real estate market, a sector infamous for its high volume of black money transactions.

* Third year students, B.B.A. LL.B (Hons.), O.P Jindal University, Haryana.


[1] Tarun Ghia, Analysis of S. 50C of Income Tax Act, 1961, TAX GURU (Mar 18, 2020, 10:46 PM),

[2] Primary vs Secondary Property: Which is Worth Buying?, PROPERTY HUNTER (Mar. 18, 2020, 08:17 PM),

[3] The Transfer of Property Act, 1882 § 54.

[4] Suraj Lamp and Industries (P) Ltd. v. State of Haryana and Anr, (2009) 7 SCC 363.

[5] Id.


[6] Income Tax Act, 1961 § 50.

[7] Indian Stamp Act, 1899 § 3(2).

[8] Indian Stamp Act, 1899 § 29(c).

[9] Kunwarpal Singh and Anr. v. State of Uttar Pradesh and Ors, (2007) 5 SCC 85.

[10] Id.

[11] The Registration Act, 1908 §28(a).

[12] The Registration Act, 1908 § 17.

[13] The Registration Act, 1908 § 17(b).

[14] M/s. Latif Estate Line India Ltd. v. Mrs. Hadeeja Ammal, 2011 (2) CTC 1.

[15] Anil Kumar Jain, Tax Avoidance and Tax Evasion: The Indian Case, 2 Modern Asian Studies 233, 243 (1987).

[16] Id.

[17] Cash is still King in Resale Property Market: Report, THE ECONOMIC TIMES  (Apr. 17, 2020, 04:23 PM),

[18] Pradhan Mantri Awas Yojana (Urban)-PMAY (U), PRADHAN MANTRI AWAS YOJANA- URBAN (Apr. 10, 2020, 05:34),

[19] Real Estate (Regulation and Development) Act, 2016 (RERA) § 3(1).

[20] Real Estate (Regulation and Development) Act, 2016 (RERA) § 20(1).

[21] Real Estate (Regulation and Development) Act, 2016 (RERA) § 35(2)(iii).

[22] Real Estate (Regulation and Development) Act, 2016 (RERA) § 4(2)(1)(d).

[23] Santosh Kumar, How Policy Interventions Helped The Resale Property Market, THE CNBC TV18 (Apr. 10, 2020, 11:18 AM),

[24] Input Tax Credit under GST, QUICKBOOKS INDIA (Apr. 25, 2020, 03:24 PM),

[25] Id.

[26] 20% Cap on GST, ITC Against Invoices Not Uploaded by Supplier, TAXGURU (Apr. 25, 2020, 12:32 PM),

[27] Vinod Behl, Demonetization Was Blessing for Realty Sector, RERA & GST Will Clean It Up, BUSINESS STANDARD (Oct. 4, 2020, 10:04 AM),

[28] Karan Batra, Benami Property Act: Practical Analysis in Simple Words, CHARTERED CLUB, (Apr.10,2020, 11:32 AM),

[29] Purchase, 99ACRES (Apr. 28, 2020,10:00AM),

[30] Purchase, 99ACRES (Apr. 28, 2020,10:00AM),

[31] K.R. Palaniswamy v. Union of India,  [2008] 306 ITR 61.

[32] Id.

[33] The Income-tax Act, 1961 § 52.

[34] K.P. Varghese v. ITO, (1981) 131 ITR 597.

[35] John Fowler Pvt. Ltd. v. DCIT (ITAT Mumbai), (2010) ITAT 10932.

[36] Honest Group of Hotels Ltd. v CIT, (2002) 177 CTR 232.

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