7.2 KYC, AML & Financial Compliance for Agents

7.2 KYC, AML & Financial Compliance for Agents

Quick Summary: Keep three questions separate: is the agent a covered PMLA reporting entity, what payment mode is required, and what tax must the buyer withhold? A cash-mode threshold is not permission to split a larger receipt into small cash instalments.

1. PMLA and FIU-IND: Who Is Covered?

Under notification G.S.R. 798(E), 28 December 2020, real estate agents providing services for the sale or purchase of real estate and having annual turnover of INR 20 lakh or more are persons carrying on designated businesses or professions. This is the agent’s annual-turnover threshold. It is not a rule that every small agent becomes a reporting entity solely because one client purchases a high-value property.

A covered entity must establish the applicable AML compliance arrangements, identify its Principal Officer and Designated Director as required, verify clients and beneficial owners, maintain records and furnish required information to FIU-IND. These obligations are distinct from MahaRERA registration and from the buyer’s income-tax withholding obligation. Agents outside this notified category still must comply with the tax and property laws applicable to their own transactions.

2. Client Due Diligence and Records

Use reliable, independent identity sources and the documents required by the applicable client-due-diligence rules. Establish the natural person who ultimately owns or controls a legal-entity client and verify the authority of the person signing. A list of examples is not a universal mandate to collect every document from every client:

Do not label Aadhaar, OCI status or an NRE/NRO account as a mandatory document for every buyer merely because they appeared in a checklist. Document the applicable requirement and the customer’s circumstances.

Two Five-Year Clocks

Under PMLA Section 12:

• Transaction records: retain for five years from the transaction between client and reporting entity.
• Identity documents, account files and business correspondence: retain for five years after the business relationship ends or the account closes, whichever is later.

Ending one transaction does not necessarily start the second clock when the client relationship continues. Preserve records so that an individual transaction and its parties can be reconstructed.

3. Current Income-Tax Cash-Mode Restrictions

The Income-tax Act, 2025, effective 1 April 2026 and amended by the Finance Act, 2026, uses new section numbers. For older transactions, use the applicable older law and transition provisions; do not simply rename a historical filing.

Section 185: Loans, Deposits and Specified Sums

For a non-exempt acceptance, the prescribed banking modes are required when a qualifying loan, deposit or specified sum, the relevant unpaid balance, or their applicable aggregate reaches INR 20,000 or more. A specified sum includes money receivable as an advance or otherwise in relation to transfer of immovable property, whether or not the transfer occurs.

The statute provides for account-payee cheque, account-payee bank draft, electronic clearing through a bank account or other prescribed electronic modes. Apply the aggregate and outstanding-balance tests rather than treating every payment below INR 20,000 as independently safe. Section 185 has specified exceptions, including relevant government/banking and notified cases; the simplified examples here assume no exception.

Section 450 permits imposition of a penalty equal to the amount accepted in contravention. Do not describe every cash receipt as automatically producing a penalty order without the statutory process or applicable qualifications.

Section 186: INR 2 Lakh Receipt Tests

This section addresses receipt of INR 2,00,000 or more from a person in a day, for a single transaction, or for transactions relating to one event or occasion, using the stated qualifying banking modes. It contains exceptions and excludes transactions of the nature covered by Section 185. Do not mechanically apply both sections as two universal cash caps on the same property advance. Section 451 provides the corresponding possible equal-amount penalty.

4. Current Resident-Seller Property TDS

For the covered non-agricultural property transfer to a resident seller, Section 393(1), Table item 3(i) normally requires deduction at 1% where the seller furnishes valid PAN. The tax base is the higher of consideration and stamp-duty value. No deduction under this entry is required only when both values are below INR 50 lakh; equality reaches the threshold. Aggregate consideration across multiple transferors or transferees rather than dividing the threshold into individual shares.

The statutory agricultural-land exclusion has its own definition: do not assume that every plot described informally as farmland is excluded. A non-resident seller follows the applicable non-resident withholding provisions, not this resident 1% shortcut.

For a current transaction:

1. Identify the applicable credit/payment event and deduction obligation.
2. Use Form 141, Schedule B for the resident-property entry.
3. Under Rules 218(3) and 219(5), pay and furnish the challan-cum-statement within 30 days from the end of the month in which deduction is made.
4. Under Rule 215, issue certificate Form 132 within 15 days from the due date for furnishing Form 141, rather than 15 days from whenever it was actually filed.
5. Failure to furnish valid PAN engages Section 397(2): for this entry the ordinary comparison includes the applicable rates and 20%. Do not use the normal valid-PAN 1% rate without checking that condition.

$$\text{Normal Resident TDS}=\max(\text{Consideration},\text{Stamp-Duty Value})\times1\%$$

TDS is withheld out of seller consideration. It is a separate compliance payment but is not an extra purchase charge added again to the agreed price.

5. Suspicion Assessment, STRs and CTRs

Indicators include unexplained payment sources, attempts to fragment cash receipts, unjustified complex ownership, refusal to disclose beneficial ownership, or transactions without an apparent economic rationale. Investigate and document the circumstances; an indicator is not automatically proof of laundering.

For a covered reporting entity, the Principal Officer reports suspicious or attempted suspicious transactions promptly and not later than seven working days after being satisfied that the transaction is suspicious. Maintain the confidentiality of records and furnishing of information under the applicable rules; do not require client consent to submit an STR.

PEP status calls for the applicable risk assessment and due diligence; it does not, by itself, make a transaction suspicious or generate a cash report. A CTR follows its own prescribed cash criteria, including a cash transaction exceeding INR 10 lakh or integrally connected smaller cash transactions in a month whose aggregate exceeds INR 10 lakh. Those thresholds are distinct from the income-tax banking-mode requirements. An STR can concern non-cash transactions and attempted transactions, regardless of value.

6. Worked Compliance Scenario

Assumptions: In October 2026, a residential apartment is sold by a resident seller with valid PAN for INR 85,00,000. Stamp-duty value is not higher; this is the first credit/payment event for a covered lump-sum transaction, with no earlier credit or payment. No cash-mode exception applies. The seller requests an initial INR 1,50,000 cash token to be credited against that consideration.

• The specified-sum receipt reaches the Section 185 test. Use a prescribed banking mode instead. If accepted in contravention, a Section 450 penalty equal to INR 1,50,000 may be imposed; this is not an automatic penalty already collected by the agent.
• Normal resident TDS is INR 85,00,000 × 1% = INR 85,000.
• Total consideration paid directly to the seller, after that withholding, is INR 84,15,000. Any compliant token is part of that consideration, not an additional amount.
• Deposit and report the withholding through Form 141 Schedule B, then furnish Form 132 within its applicable deadline. A different residency status, higher stamp-duty value or earlier instalment event requires re-evaluation.

Primary sources: FIU reporting and retention FAQ; FIU Annual Report 2021–22, notification G.S.R. 798(E); current Income-tax Act, Sections 185, 186, 189, 393, 397, 450 and 451; notified Income-tax Rules 2026, Rules 215, 218 and 219; FIU maintenance/reporting rules.