Token Advance and Sale Agreement for Sellers: Amounts, Terms and Refunds

A buyer has seen your flat twice, brought their parents along, and now says the words every seller waits for: 'We want it. Can we give a token today?' They are holding out a cheque, or worse, a bundle of notes. You want to lock the deal before they change their mind. You also have no idea how much to accept, what to sign, or what happens if either of you backs out.

The token and the sale agreement that follows are where most resale deals either become solid or start to wobble. Get the amount, the paperwork and the cancellation terms right at this stage, and the rest of the sale is mostly admin.

Token, advance and earnest money: what each one means

People use these words loosely, but in a typical Indian resale there are two separate payments before the final one:

• Token advance: a small first payment that shows the buyer is serious and takes your property off the market for a short period, usually while the buyer's lawyer checks your documents and their bank looks at the loan.
• Agreement advance: a larger payment made when both sides sign the agreement for sale. This is often called earnest money in the agreement itself.
• Balance payment: paid at registration of the sale deed, often largely through the buyer's home loan.

The label matters. If the agreement clearly calls a sum earnest money and says it can be forfeited if the buyer defaults, you are on much firmer ground than if it is just described as 'advance received'.

How much to take

There is no legal figure. These are common market practices, not rules:

• Token: often a round sum such as ₹1 lakh to ₹2 lakh, or roughly 1% of the price on larger deals. It should be enough that walking away hurts the buyer a little, but small enough that a genuine buyer does not hesitate.
• Agreement advance: commonly around 10% of the sale price, including the token. Some sellers take more when the buyer is paying largely from savings.
• Timeline for the token: tie it to a fixed window, typically 7 to 21 days, by which the agreement must be signed.

Worked example: you agree to sell a flat in Bengaluru for ₹1.2 crore. You take a ₹1.5 lakh token on 5 November, with the agreement to be signed by 20 November. At signing, the buyer pays a further ₹10.5 lakh, bringing the advance to ₹12 lakh (10%). The remaining ₹1.08 crore comes at registration, mostly from the buyer's lender.

A bigger advance gives you more comfort, but do not push so hard that a buyer with a perfectly good loan sanction feels squeezed. What matters more than the size is that the terms around it are written down.

Never take the advance in cash

Under the old Income Tax Act, Section 269SS barred anyone from accepting ₹20,000 or more in cash as an advance or other sum connected with the transfer of immovable property, whether or not the deal went through. The penalty, under the old Section 271D, could equal the entire amount received. Tax commentators report that the same rule continues under the Income Tax Act, 2025 in its section on loans, deposits and specified sums, which took effect on 1 April 2026.

The practical answer is simple: take every rupee by bank transfer, cheque or demand draft, and note the transaction reference in the receipt and the agreement. If you ever have to refund the money, refund it the same way.

TDS applies to the token too

If the sale price, or the stamp duty value if higher, is ₹50 lakh or more, the buyer must deduct 1% TDS from each payment, including the token and the agreement advance. This was the old Section 194-IA and now sits in Section 393(1) of the new Act. On a ₹1.5 lakh token you would receive ₹1,48,500 and see ₹1,500 credited against your PAN. Make sure your PAN is correct in the buyer's paperwork, as of November 2026.

What to put in writing at the token stage

Even for a small token, sign a short receipt or token agreement on the same day. It should cover:

1. Names, addresses and PAN of seller and buyer, and the full property description (flat number, project, survey or khata number).
2. The agreed total price and what it includes: car park, fittings, any furniture.
3. Token amount, payment mode and transaction reference.
4. The date by which the agreement for sale must be signed.
5. What happens to the token if the buyer withdraws, if your title documents fail the buyer's legal check, or if the buyer's loan is rejected.
6. That you will not accept other offers during this window.

What the agreement for sale should say

The agreement for sale is the real contract. It is worth having a property lawyer draft or review it. Make sure it covers:

• Payment schedule: each amount, its due date and how it will be paid, with TDS shown separately.
• Registration deadline: a firm date, commonly 45 to 90 days out when a home loan is involved, plus a short grace period.
• Documents you will hand over: title deed, khata, tax receipts, encumbrance certificate, society NOC, OC where applicable.
• Your existing loan: if your bank holds the original documents, say how and when you will close the loan and obtain them.
• Possession: that it passes only on registration and full payment.
• Default terms: what happens if either side fails to perform, covered below.
• Condition of the home: fixtures staying, and that you will hand over in the present condition.

Do not hand over possession at agreement stage

In Karnataka, an agreement for sale without possession attracts a relatively small stamp duty. If the agreement delivers possession, the Karnataka Stamp Act treats it like a conveyance and duty is charged at the full sale rate on market value. Beyond the tax point, a buyer living in your home before paying you in full is a risk you do not need. Keep possession until the sale deed is registered.

Refund and cancellation terms that are fair to both sides

This is the clause people skip and later fight over. Spell out each scenario:

• Buyer backs out without reason: you may forfeit the earnest money, or an agreed part of it, and refund the rest within a set number of days.
• Buyer's loan is rejected despite genuine effort: many sellers agree to a full or near-full refund, provided the buyer shows the rejection letter. This keeps good buyers comfortable signing.
• Title problem on your side: full refund within a short period, often with interest.
• You back out: buyers commonly ask for double the advance or a refund with interest. Think carefully before agreeing to a double-refund clause, because the buyer can also go to court to make you complete the sale.

On forfeiture, Indian courts have not been fully consistent. In Kailash Nath Associates v DDA (2015), the Supreme Court said forfeiture of earnest money is subject to Section 74 of the Contract Act, which points towards forfeiting only a reasonable amount. A 2025 Supreme Court bench took the view that genuine earnest money forfeiture is not a penalty in the ordinary sense. The safe reading for a seller: call it earnest money, keep it to a reasonable share of the price, and make the forfeiture clause clear. Forfeiting a very large advance over a short delay invites a dispute.

Common mistakes sellers make

• Taking a token from two buyers 'just in case'. This can lead to legal claims from both.
• Accepting the advance in cash, or splitting it into small cash payments.
• Leaving the registration date open-ended, so a slow buyer can hold your home for months.
• Not checking that the agreement price matches the guidance value position, which affects stamp duty and your capital gains working.
• Signing the buyer's standard draft without reading the default clause.

This guide is general information, not legal or tax advice, so have a lawyer review your agreement and a CA look at the tax side. If you are selling, Skyros Estates can help you vet buyers, check that offers are backed by a real loan sanction, and get the token and agreement terms in order before anything is signed.