Buying homes is a highly emotional and gratifying task. However, it is an equally price-sensitive proposition. It is always possible for the buyer to make wrong decisions along the property purchase process, increasing the total purchase expenditure. Hence, it is important to know that there are certain advance payments that a homebuyer should never make, irrespective of their emotional attachments.
Token money
As per market practice, a homebuyer is expected to pay an advance amount to book the purchase, before the sale deed is registered, as an indication of his genuine interest. This amount is known as token money, bayana, earnest deposit, goodwill amount or booking amount. While there are no written rules, buyers often pay up to 20% of the property value at the time of the registration of the sale agreement.
If the deal were to fall through for some reason, the buyer stands to lose the advance amount. Even if they do get the money back, they won’t earn any interest on the amount. Negotiate with the seller to keep the advance amount as low as possible.
See also: Token money refund rules: Dos and don’ts for paying token money for a property purchase
Don’t pay for loan pre-payment
Some sellers would request advances so that they can pre-pay their outstanding home loan to get the original property papers from the bank and close the deal as soon as possible. Always say no to such a proposal. By paying a substantial amount of money, you will expose yourself to monetary risks. You will also place the seller in a favourable position to commit fraud if they are so inclined. You are not responsible for their loan repayment. Do not bear that responsibility.
Don’t pay advance TDS
For properties worth more than Rs 50 lakh, sellers are liable to pay 1% tax deducted at source to the income tax authorities. However, the buyer is responsible for the TDS deduction from the money to be paid to the seller. During home loan processing, banks may ask you to pay the TDS in advance and submit a receipt. Do not make this mistake.
Don’t pay advance stamp duty and registration charges
In case there is a significant difference between the date of property registration and the handover, it does not make sense to block your money in stamp duty and registration charges in advance. These charges are subject to periodic change by state governments. Pay these charges only once the actual registration is finalised.
Brokerage charge
No matter what you have been told, the brokerage is only to be paid after the transaction is completed successfully. The fee, thus, paid includes assistance in property mutation.
FAQs
What are some of the advance payments that homebuyers have to make?
The advance payment that home buyers have to make in India includes earnest deposit, TDS, stamp duty and registration payment.
Is stamp duty paid before property registration?
Yes, the duty is paid in advance. On the day of registration, the documentary proof of the same has to be produced to the sub-registrar.
