Project & Payment
What is Earnest Money?
The one payment whose entire purpose is to hurt if you change your mind. Which means the only clause that matters is the one describing when.
The short answer
Earnest money is a deposit that proves you're serious — and it is designed to be forfeited if you walk away. That is not a bug; it is the point of it.
Typically 10–15% of the price. It counts toward the purchase if you complete. If you don't, the seller keeps it — and how much they keep is decided by a clause you sign before you pay. Read that clause.
What earnest money is
The word "earnest" is doing real work here. It's an old legal term meaning a pledge of good faith — money you put down to show the promise is genuine, which you lose if the promise isn't kept.
In an Indian property deal it is usually 10–15% of the price, and it usually forms part of the booking amount rather than sitting alongside it. It counts toward the purchase price if you complete.
When it's forfeited
| Scenario | What normally happens to the earnest money |
|---|---|
| You withdraw without valid cause | Forfeited. This is what the deposit is for. |
| Your home loan is rejected | Depends entirely on whether you wrote in a loan-approval condition. If you didn't — usually forfeited. |
| The seller withdraws | Refunded. Often the agreement provides for a penalty on top — negotiate for that. |
| The title turns out to be defective | Refundable. The seller cannot forfeit a deposit for failing to sell what they didn't own. |
| The builder fails to deliver as agreed | RERA entitles you to a full refund with interest. |
| The project isn't RERA registered | You should not have paid it. Recovery is possible but harder. |
The second row is where most buyers get hurt. A loan rejection feels like bad luck rather than a broken promise — but unless you wrote the condition in, the agreement doesn't see it that way.
The clause that matters
Somewhere in the agreement is a clause saying what happens to the earnest money if you don't complete. It will say one of three things:
1. The entire earnest money is forfeited. Common. Harsh.
2. A specified percentage is forfeited. Better — you know the number.
3. Reasonable damages are deducted. Best for you, and rarest.
This clause is negotiable before you sign. It is not negotiable afterwards. It takes five minutes to read and it can cost you several lakh rupees not to.
Indian courts have held that a forfeiture must be reasonable and connected to actual loss suffered — a seller cannot simply keep a large deposit as a windfall where they've lost nothing. But relying on that means litigation. Far better to fix the number in the contract, in advance, when you still have leverage.
Protecting yourself
- Get your loan pre-approved before you pay. This removes the commonest cause of forfeiture entirely. It is the single most useful thing on this list.
- Write in a loan condition anyway. "Refundable in full if the home loan is not sanctioned within X days." Pre-approval can still fall over on property valuation.
- Cap the forfeiture. Negotiate a specific percentage rather than "the entire amount".
- Do the title check first. Encumbrance certificate, chain of title, RERA registration — all of it before, not after.
- Get a receipt that names the sum as earnest money and states the forfeiture terms. Ambiguity here is always resolved against you.
- Pay by traceable transfer. Never cash.
Get the loan sanctioned before you pay the earnest money.
Not a pre-approval in principle — an actual sanction letter for the actual amount. It costs you nothing but a few weeks, and it eliminates the single most common way Indian buyers lose a deposit.
A builder who won't wait a few weeks for your sanction letter is a builder in a hurry, and you should ask yourself why.
Earnest money vs token vs booking amount
| Token amount | Booking amount | Earnest money | |
|---|---|---|---|
| What it is | A small sum to hold the unit while paperwork is prepared | The formal advance against the purchase price | A deposit that demonstrates you are serious |
| Typical size | ₹50,000 – ₹2,00,000 | Up to 10% of the price | 10–15% (often the same money as the booking amount) |
| Legal cap | None | RERA: max 10% before a written agreement | None |
| Refundable? | Depends entirely on what's in writing. Often not. | Depends on the agreement. Read the cancellation clause. | Designed to be forfeited if you walk away |
| Counts toward the price? | Usually | Yes | Yes |
| The thing to get | A written receipt naming the unit, the price and the refund terms | A signed agreement — RERA requires one before more than 10% is taken | Written cancellation terms, before you pay |
In practice, Indian builders use these three terms loosely and often interchangeably. Do not rely on the label. Rely on what the receipt says.
Frequently asked questions
Is earnest money refundable?
Not if you walk away without valid cause — being forfeited is its entire purpose. It is refundable if the seller withdraws, if the title is defective, or if the builder fails to deliver as agreed. If your home loan is rejected, it depends entirely on whether you wrote that condition into the agreement.
How much is earnest money in India?
Typically 10% to 15% of the property price, usually forming part of the booking amount rather than sitting alongside it. It counts toward the purchase price if you complete.
Can the builder keep my entire earnest money?
Many agreements say so, and that clause is enforceable if you signed it. Indian courts have held that forfeiture must be reasonable and connected to actual loss — but relying on that means litigation. Far better to negotiate a capped percentage into the contract before you sign, while you still have leverage.
What happens to earnest money if my home loan is rejected?
Usually forfeited, unless you explicitly wrote in a loan-approval condition. This is where most buyers get hurt — a rejection feels like bad luck, but the agreement treats it as you failing to complete. Get your loan sanctioned before you pay, and write the condition in anyway.
What is the difference between earnest money and booking amount?
A booking amount is the formal advance against the price, capped by RERA at 10% before a registered agreement. Earnest money is specifically a good-faith deposit designed to be forfeited if you withdraw. In practice Indian builders roll them together, so what matters is not the label but the forfeiture clause.