If any advance money is received from prospective buyer

but deal is not materialised

And later the asset is actually sold or transferred,

This advance is reduced from the cost of the asset

This advance is taxable as Income from Other Sources (AMENDMENT  applicable for advance received w.e.f on or after.1.4.2014)




  • Even if asset acquired before 1/4/81 then also advance money received will be reduced from the cost of asset.
  • If Advance money forfeited was more than the cost of asset, then cost of asset will be treated as Zero.
  • In case of indexation first advance money will be reduced from cost of acquisition and then indexation done.
  1. Income Tax
  2. Income from Other Sources

About the Author

CA Maninder Singh's photo - Expert in Practical Accounts, Taxation and Efiling
CA Maninder Singh
CA Maninder Singh is a Chartered Accountant for the past 11 years. He also provides Accounts Tax GST Training in Delhi and Pune.