Advance Payments in Real Estate: What Every Home Buyer Should Know
Published on: 19 Mar 2025
Are you going home-hunting soon or planning to buy a real estate property? Then you must know about advance payment because it is one of the most important things about home buying.
The property comes with many other supplementary costs, such as costs incurred toward the legal transfer of the property. You may pay some smaller amounts, which might be considered to be forms of advance payment, though they may not be included in the final amount you pay the seller.
So, what advance payments could the seller demand, and what should the buyer do under such circumstances?
Booking Amount
Goodwill deposit, booking amount, token money, and Bayana, earnest deposit all these terms mean the same: advance payment before buying any property. When a buyer finalises a property and decides to show their genuine interest in the property, he make a payment towards booking the property. This begins with the buyer transferring a small amount of the transaction value to the seller to show their genuine interest. This advance amount or part of the sale consideration amount given by the buyer as an assurance is known as token money. However, there are a few factors that must be considered while paying token money.
- When a verbal agreement has been made between and buyer and the seller, but the legal paperwork is pending
- As an assurance, the seller can demand advance payment from the buyer
- If the buyer decides to not proceed with the purchase of the property, he can forfeit the token amount from the seller, unless otherwise stated.
When it comes to the amount of the token, nothing specific is mandated by law, and hence it varies from case to case.
Stamp duty
Stamp duty comes under legal procedure, and a buyer has to pay stamp duty on the property purchase.
It is suggested to take your time to do this because if you were to withdraw from the deal or the seller decides to back out, all the money invested in the purchase of stamp papers would prove to be worthless. They would go to waste because these documents and stamp duty are non-transferable and non-refundable.
Advance TDS payment
The Indian government has charged a 1% property tax on properties worth more than Rs—fifty lakhs since June 2013. The law makes it compulsory for the buyer to deduct 1% tax at source (TDS) on property purchases. When completing form 26QB transaction amount is deducted by 1% and deposited with the government. In the case of NRI sellers, the TDS charged is much higher because the buyer deducts the capital gains tax on the transactions. It is a very tedious process. Buyers often take help from banks, mostly when they are using housing finance for the purchase to deduct the TDS. Although your amount is low, your money would be stuck for a long time if the deal fell apart. If a property is purchased for 50 lakhs, the buyer will pay the seller only Rs. 49.50 lakhs. The remaining amount will be deducted as TDS and deposited with the tax authorities.
Home loan advance payment
Making an advance payment on a home loan is not advisable for any buyer, since this could be dangerous. Sellers having a current home loan on a residential property may ask a buyer to make advance payments, allowing the deal to be completed with needed documents.
The lender must provide a NOC, that is No Objection Certificate, stating that the loan is repaid and there are no other charges on the property.
This was all about an advance payment paid by the buyer when purchasing a property. We hope this blog helps you know about advance payments and all you need to know about them.
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