Advance payment is one of the crucial things a homebuyer comes across while striking a deal for a real estate property. Advance payment for purchase of property safeguards buyers’ interests.
The property comes with many other supplementary costs such as costs incurred towards legally transferring the asset to the name. A developer may ask the buyer for an advance fee in real estate in various forms.
So, what if a real estate developer asks the buyer for a housing advance payment and what a buyer should know about such situations?
These issues are being discussed in this very same article.
Kasturi Housing consistently protects a buyer’s interests as well as keeps all property transactions in the open.
Booking amount or token money
Many developers will not discuss the terms and conditions of property purchase unless they are really confident in the buyer’s genuine interest. Many times, sellers will ask for the following to ensure that the buyer is serious about purchasing the property:
- Goodwill deposit
- Booking amount
- Token money
- Earnest deposit.
This is asked way before the actual deal is discussed.
All the above terms mean the same; advance payment. A buyer has to pay a certain amount to validate the intention to make the purchase. Typically, a seller may ask for an amount ranging from Rs. 50,000 to Rs. 1 lakh as token money for buying the property.
A buyer is required by law to pay stamp duty when purchasing a property. However, one must therefore not rush when doing so. It’s possible that you won’t be interested in a property, or that the seller may back out. In any of these circumstances, your stamp paper purchase could be worthless. All these legal documents are really not refundable or transferable. As a result, consider your options carefully.
Advance TDS payment
Since June 2013, the law states that a sale of property worth more than Rs. 50 lakhs in India, a tax of 1% has to be deducted from the total sale consideration before a buyer pays the seller.
When completing Form 26QB, the buyer must deposit this 1% TDS perhaps with the government, along with the buyer’s and seller’s PANs. This prevents the seller from avoiding capital gains taxes. TDS on advance payments is very usual these days, but you really should always contact your financial advisor prior to actually making any payments.
Home loan advance payment
Buyers of pre-owned properties, take note! Making an advance payment on a home loan could be dangerous.
Whenever the seller of residential property has a current home loan upon that property, they may start by asking a buyer to consider making advance payments, allowing the deal to be completed with the requisite documentation.
The lender must provide a No Objection Certificate (NOC) stating that the loan has already been repaid and that there are no outstanding charges on the property. Although it appears to be simple, buyers should avoid making such payments.
Some frequently asked questions
- What is token money?
While purchasing the property, the token amount is paid when the buyer and seller are on a verbal agreement and want to move forward with the deal.
- How much money should be paid as a token?
There are no firm rules about how much money should be paid as a token amount.
- Can I buy the property with a running loan?
The property can be sold only after the existing owner repays the loan amount in full.
- Can we pay stamp duty in advance?
Stamp duty must be paid before and otherwise at the time of performing the transaction for which stamp duty is required. As a result, stamp duty is usually paid either before or on the same day the transaction is executed.
- Is the token amount refundable?
Unless the sides have signed a notarized agreement stating otherwise, if the customer fails to complete the purchase for whatever reason, the seller forfeits the token money. The customer normally pays the token amount to the seller right after the verbal promise.
Looking for detailed information about real estate transactions and how to safeguard your intentions when purchasing a property? Visit Kasturi Housing’s pool of information here. We’ve created a list of real estate blogs that you might find interesting.