Black money to white? Tax tribunal torches farmland scam that’s cleaned crores for decades

For decades, it’s been one of India’s most quietly effective laundering tricks: buy farmland with a mix of under-the-table cash and under-reported paperwork, then sell it years later for full market value—and walk away with white money, no tax owed.

Now, a recent ruling by the Ahmedabad bench of the Income Tax Appellate Tribunal (ITAT) may have just yanked the rug from under this time-tested scheme.

How it works
Here’s how it used to work: say you’ve got ₹5 crore in unaccounted cash. You find a cooperative farmer and buy his ₹7 crore piece of rural agricultural land. The sale deed officially shows just ₹1.5 crore. The farmer—often off the tax radar—pockets the remaining ₹5.5 crore in cash, no questions asked.

A few years down the line, you sell the land for its full value—₹7 crore—through a legitimate bank transfer. Because agricultural land isn’t defined as a “capital asset” under Indian tax law, there’s no capital gains tax on the sale. The original under-valuation? It slides through unnoticed. Your ₹5.5 crore in black cash is now squeaky clean.

What could change
That playbook may no longer work. In a landmark ruling on May 27, reported by The Economic Times, the ITAT declared that under Section 56(2)(x) of the Income Tax Act, the difference between a property’s market value and its declared transaction price can be taxed as “income from other sources”—even if the asset is rural agricultural land.

This is significant because, until now, such land was exempt from capital gains tax, and buyers avoided scrutiny by under-declaring purchase prices. But under this new interpretation, the ₹5.5 crore in hidden cash you used to buy the land is taxable the moment the transaction happens.

The capital gains exemption on selling the land still applies. However, the main laundering move—converting black cash into white by buying cheap on paper and selling high later—now triggers full income tax at the purchase stage.

In short, under the old rules, you could buy agricultural land for ₹1.5 crore on paper, pay ₹5.5 crore in cash under the table, and sell it later for ₹7 crore in white. No taxes, no questions. Under the ITAT’s view, that ₹5.5 crore is now taxable in your hands the moment you hand it over.

Your black-to-white money conversion may still look clean on sale—but the taxman now gets a piece upfront. If higher courts uphold the ITAT’s interpretation, the farm flip loophole, long used to sanitize undisclosed income, may be as good as dead.