Advance Payment in a property deal is a financial tradition that has been into existence for long now. Well, advance payments and token amount are given at the time for finalization for starting a property deal. While the token money can be a meager some or can be a larger amount before the full and final payment is made at the time of registration.
To be precise, the seller at times demands additional money other than advance before registration. Even banks insist on advance payment but not many know that it is against the rules and regulations because the buyer’s money is at risk as the transfer of property isn’t made.
Pre-closure of Home Loan
When the seller asks the buyer to pay advance for pre-closure of the home loan, there is enough probability of a fraud. The possibility is that the buyer could pay the home loan dues and sell it to someone else. So, he would be selling it to two people at once. Furthermore, the seller would be gaining almost double money and while the two parties would be fighting each other.
Higher Payments before Registration
As per the thumb rule, if you are buying a property never pay above 20% of the property value before the registration. You increase the amount of pre-payment, you increase the risk as well. Also, never disclose to the seller how you are going to make the payments, as in how is a loan and how much you are going to pay from your pocket. You may avail 80% loan even if you have the money, and go for pre-closure rather than paying from your pocket.
Registration Date and Delay
The property deal could close in 45-60 days or at time 6 /12 months. If the registration time is more than the said period a sale agreement needs to be made. But, a rather good idea is to close the deal ASAP as the risk increases. If the registration date is over a year later, there is a high chance that the buyer backs out due to increase in property rates.
TDS, also known as Tax at Source has always topped the list wherein bank asks to pay in advance. When you avail a home loan, the TDS amount could be the high amount and the bank could insist the buyer to pay it in advance, submit the receipt of the same before the loan amount is dispersed by them. This is apparently, not required or not in the rule book. For example for an Rs. 100 loan in the ratio of 80:20 wherein the buyer paid 10 as token and 10 was to be paid later and 80 is to be paid by the bank. Now, the bank demands TDS that comes to 20.66, considering long-term capital gain for the property that values over a crore buck. The banks ask the buyer to pay advance 20.66. The buyer is paying 10.66 in excess and is not aware of how the adjustment of the same would be made by the bank. It’s tricky and hence it is better not to indulge in such a kind of situation. Alternatively, you may give a written application to the bank to deduct the TDS and transfer the remaining amount to the buyer’s account.
Stamp Duty and Registration
Registration and stamp duty charges vary from state to state. Some states provide the facility to buy stamp papers of the stamp duty value before registering the property. The validity of paying the stamp duty is that of 6 months. But, be aware that stamp papers are not refundable or transferable. Hence, never buy the papers in advance until you are already with the verification and payment. Hence, rather than advance payments, carrying a demand draft or bankers cheque with you on the day of the registration is a better idea. Also, try to find out the exact amount around a week in advance from the sub registrar’s office and get a DD issue on that amount so that you can deposit it on the day of the registration.
Last but not the least many sellers ask for cash payment which is a big no in every property deal because cash payment above 20K is considered illegal.