Advance payment is one of the crucial things a homebuyer comes across while striking a deal for a real estate property. Advance payment for the purchase of flat safeguards buyers’ interests.
The property comes with many other supplementary costs such as costs incurred towards legally transferring the asset to the name. A real estate developer may ask the buyer for advance payment in various forms.
So, what if a real estate developer asks the buyer for advance payment and what a buyer should know about such situations?
We are discussing these things through this article.
Kasturi Housing always safeguards the interests of a buyer and maintains complete visibility with property dealings.
Booking amount or token money
Many developers sometimes avoid discussing the terms of conditions of the property transaction unless they are aware of the genuine interest of the buyer. To make sure the buyer has serious intentions towards the property purchase, many times, sellers may ask for:
- 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 a token amount.
Abided by law, a buyer has to pay the stamp duty while buying the property. But, one should not hurry while doing so. There can be a situation where you are not interested in a certain property, or even a seller backs out. In these cases, all your investment in stamp papers could go in vain. These legal documents are non-transferable and non-refundable. So, make a decision 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 on the total sale consideration before a buyer pays to the seller.
The buyer has to deposit this 1% TDS to the Government along with the PAN of both the buyer and seller while submitting the Form 26QB. This ensures that the seller doesn’t avoid taxes on capital gains. This TDS on advance payment is a common thing these days but you should be consulting your financial advisor before making any payment.
Home loan advance payment
Attention pre-owned property buyers! Home loan advance payment could be risky.
An event could occur when the seller of the residential property has an ongoing home loan on the property, they would ask the new buyer to make advance payments, which could complete the sale with necessary documents required.
Here, the lender has to furnish a No Objection Certificate i.e. NOC saying the loan has been repaid and no pending charges are due on the property. It sounds so simple, but buyers should refrain from 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.
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