Buying property in India is a major financial commitment that involves multiple steps – from shortlisting the right property to completing legal formalities and making payments. One term that frequently arises early in this journey is “token money.” Although commonly used, it’s often misunderstood, especially by first-time homebuyers.
In this article, we’ll explain the meaning of token money and why it plays a crucial role in Indian real estate transactions. If you’re planning to finance your purchase with a home loan, understanding this initial payment can help you plan your finances more effectively and avoid surprises later in the process.

What Is Token Money?

Token money is a small, initial payment made by the buyer to the seller as a gesture of commitment to purchasing a property. It typically occurs before signing the sale agreement or any formal documentation. The amount is usually nominal compared to the total property value, and is paid after initial verbal agreement on terms like price, possession date, and inclusions.
It’s important to note that while token money may not have the full legal weight of a binding contract, it often serves as the basis for drafting a Memorandum of Understanding (MoU) or Letter of Intent (LoI).

Purpose and Significance of Token Money

The significance of token money lies in its ability to initiate and formalise early-stage property negotiations. Here’s why it’s important:

• Signals Seriousness: It shows the buyer is genuinely interested in going forward with the purchase.
  
• Temporarily Locks the Property: Sellers usually stop showing the property to other potential buyers once token money is paid.
  
• Initiates Formal Process: It sets in motion key steps like property verification, documentation, and even home loan applications if needed.
• Establishes Trust: It builds confidence between buyer and seller, laying the foundation for a smoother transaction.
  

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When Is the Token Money Paid?

Understanding when to pay token money is just as important as knowing why it’s paid. The timing can vary based on the mutual agreement between the buyer and seller. Typically, token money is paid during one of the following stages:

1. After a Verbal Agreement

In most cases, token money is paid once both parties have verbally agreed on key terms like the property price, payment schedule, and possession timeline. This initial payment acts as a commitment from the buyer and helps move the deal forward.

2. When the Offer is Accepted

Sometimes, token money is paid after the seller formally accepts the buyer’s offer. At this stage, the seller may bring in a legal advisor or escrow agent to begin preparing the necessary paperwork and initiate the formal sale process.

What Are the Token Money Refund Rules?

Property deals don’t always go as planned, but does that mean the buyer loses the token amount once it's paid? Not necessarily. Whether the buyer or the seller backs out, the token amount can be refunded, depending on the circumstances and guidelines laid out by the Real Estate Regulatory Authority (RERA).
Here’s what RERA says about token money refunds :

Refund Rules for Buyers

Under RERA, homebuyers have the right to cancel a property deal, regardless of whether the cancellation is due to the developer’s fault or not. In such cases, the builder is required to refund the full token amount within 45 days from the date of cancellation. To discourage unjustified delays, RERA also mandates that developers pay interest on delayed refunds.

Refund Rules for Sellers/Developers

If the buyer decides to cancel the deal without any fault on the part of the developer, and does so within 45 days of receiving the allotment letter, the developer is allowed to deduct a nominal penalty from the token amount before issuing the refund.

How to Calculate the Token Money for a Property Purchase?

There’s no fixed formula to determine token money, but it typically ranges between 1% and 5% of the total property value. The exact amount is often negotiable and varies based on mutual agreement between the buyer and the developer or seller.
Key factors that influence the token money amount:

• Value of the property
  
• Urgency of the transaction
  
• Local market practices
  
• Level of interest from other buyers
  
• Buyer-seller negotiations
  

Here’s an example of token money: if you’re buying a property worth INR 50 lakhs and agree on a token money of 2%, you would pay INR 1 lakh, which is usually adjusted in the final payment.
As you plan your finances, it’s wise to consider not just the token amount but also the long-term affordability of the property. Use a home loan EMI calculator as part of your financial planning to estimate your monthly repayments and ensure your overall budget can comfortably cover both upfront and ongoing costs.

Difference Between Token Money and Booking Amount

Token money is paid to show intent before any formal agreement, while the booking amount is paid after signing the sale agreement to officially reserve the property.

Conclusion

Token money may be a small sum, but it plays a significant role in the property transaction process in India. It serves as an initial commitment that kicks off the journey toward homeownership. However, like any financial exchange, it must be handled with transparency, proper documentation, and clear communication.
Buyers should avoid rushing into token payments without due diligence, and sellers must communicate refund policies clearly. A simple receipt or written MoU can go a long way in avoiding legal disputes and building trust between both parties.
When you're ready to move forward, consider financing your purchase with a home loan of up to 90%* of the property’s value from SMFG Grihashakti. Estimate your EMIs and apply online to enjoy competitive home loan interest rates starting from just 10%* per annum.