What Is Token Amount in Real Estate? Refund Rules, Legal Risks And More

Token money or Bayana is one of the first payments made during a property transaction, but it's often misunderstood and mishandled. Whether you're buying from a builder or an individual seller, it's essential to know what the token amount means, how it works, whether it's refundable, and what your rights are there in case the deal goes wrong.

What Is Token Money With Example?

Token money (Bayana) is a payment made by the buyer to the seller in a property transaction to demonstrate serious intent to buy the property. It is not mandatory, but it is a convention to start the deal before signing the official sale agreement.

So, if you are buying a flat worth Rs 1 crore, there's a chance that you may be asked to pay token money of Rs 2 lakh, for instance. This is a number that tells the seller you're serious and ready to move the deal forward, which will get you to start due diligence, begin drafting the agreement and get your home loan in motion. Token money, in most cases, is 1 per cent to 5 per cent of your property value.

What Is the Meaning of Token Payment?

Token payment is a symbolic advance made to lock in a property deal and prevent the seller from negotiating with other buyers. It's essentially a gesture of trust between both parties, made before the full agreement is signed.

However, token money does not grant any ownership rights. It only reflects the buyer's intent and binds both parties to negotiate further based on mutually agreed-upon terms. Whether it's refundable or not depends entirely on the conditions laid out in the written agreement.

Is Token Amount Refundable?

The refundability of token money depends on what's mentioned in the agreement between the buyer and seller. If there's a clause that allows refunds, such as in cases where a home loan gets rejected, or legal issues are discovered in the property, then the buyer may get the token amount back.

But if the buyer backs out of the deal for no good reason or delays the payment beyond the stipulated time, sellers frequently retain the token money, as compensation for wasting their time and opportunities. This often occurs in contracts that are "non-refundable."

To prevent misinterpretation, buyers should always demand a written contract specifically detailing the refund, default and forfeit terms.

Can You Get Token Amount Back From Builder?

If you are dealing with a builder/developer registered under RERA(Real Estate Regulation and Development Act, 2016), you have more protection.

RERA permits buyers to cancel housing bookings and orders builders to return the entire amount within 45 days, including the token amount, if the builder is at fault. If the cancellation is without any reason but on the buyer's request, the builder can deduct a small penalty and refund the amount. All advances received, to a maximum of 10 per cent of the value of the property, have to be parked in a separate escrow account. Builders can't use these deposits elsewhere, offering a clearer track to collect money during a dispute.

Risks Associated with Token Money

Without careful consideration, paying a token amount can result in financial and legal problems:

Absence of Written Agreement: If you don't have a written record of the loan, it may be hard to prove it even exists or that you didn't intend it as a gift.

Seller's Forfeiture: If you delay payment or withdraw without a valid reason, sellers generally retain the token money.

Fraud or misrepresentation: Fly-by-night sellers may vanish after taking token money, especially in the case of unregistered properties or cash transactions.

Not Tax Deductible: If you lose the token value, you are treated as if you had a capital loss under tax rules. There will be no deduction available for you. Sellers who retain the token money had to declare this as "income from other sources".

How to Protect Yourself When Paying Token Money

Ensure You Document Transaction: Never forget to take a token in writing or MoU on a legal paper mentioning the token paid, the refund policy, and the date or timeline of the transaction.

No cash: Make payments via bank transfer or UPI, or cheque that can be traced.

Confirm the property details: Make sure seller has legal ownership. Demand for title deed, ensure that there are no charges on the property and check whether or not the land records are proper, including that of the Khatian number (the same name used in some states).

Before You Sign: Thoroughly review all applicable terms of agreement for refund, inspection, legal compliance, and title verification clauses.

Be Aware of Your Rights: From the moment an accepted token is paid, the seller is not allowed to make a legally valid sale to a third party, another buyer.

What To Do If a Seller Runs Away With the Token Amount?

If a seller disappears or fails to follow through after receiving the token amount:

File a Civil Suit: You can file a civil case for recovery, but success depends on having written proof.

Approach RERA (if applicable): In case the builder/developer is registered under RERA, file a complaint under RERA to recover the token amount.

Lodging of an FIR: In cases where there is clear-cut evidence of fraud, cheating, or misrepresentation, you can file a police complaint under applicable sections of the IPC.

Seek Legal Counsel: You need advice about how to draft agreements and what remedies you may seek.