When you pay instalments on an under-construction flat, a natural worry is where that money goes. RERA has a specific answer, often called the "escrow rule". The nickname is a little misleading, so here is what the law actually says, in plain words.
The rule itself
When a promoter registers a project under section 4 of the Real Estate (Regulation and Development) Act, 2016, it signs several declarations. Sub-clause (D) of section 4(2)(l) is about money. It says seventy per cent of the amounts collected from buyers for that project, from time to time, must go into a separate account in a scheduled bank, and be used only for the cost of construction and the land cost.
Four parts of that sentence do the work:
- "Amounts realised from the allottees": it applies to what buyers actually pay, as they pay it.
- "From time to time": every receipt, not one deposit at launch.
- "For the real estate project": one account per project. Money from one project cannot build another.
- "Used only for that purpose": construction and land. Not ads, not office costs, not the next site.
The problem it solves
Picture a builder who collects instalments on Project A and uses them to buy land for Project B. Project A stalls because its money has turned into someone else's plot. Buyers in A have no claim on that land. The separate account stops this by tying money to the project before anyone can redirect it.
Taking money out: three signatures
The provisos to the same sub-clause control withdrawals, and this is the part rarely explained. The promoter may withdraw in proportion to the percentage of the project completed, and only after an engineer, an architect and a chartered accountant in practice certify that the withdrawal is in that proportion.
| Who certifies | What they confirm |
|---|---|
| Engineer | The work actually done on site |
| Architect | The percentage complete against the sanctioned design |
| Chartered accountant | That the amount matches that percentage |
There is also a yearly check. The accounts must be audited within six months of each financial year's end by a chartered accountant in practice, who verifies that money collected for the project was used for it and that withdrawals followed the rule.
A simple example
Say buyers in a project have paid ₹10 crore in total so far. At least ₹7 crore of that must have gone into the separate account. If the professionals certify the project is 40 per cent complete, withdrawals are tied to that 40 per cent, not to whatever the promoter would like to spend.
What the rule does not do
- It does not guarantee completion. A promoter can still run short of money.
- It does not pay you for delay. That is section 18: refund with interest if you leave, or monthly interest if you stay.
- It does not fix title problems. Section 18(2) covers loss from defective title, and your own title check still matters.
- It does not stop you paying ahead of the work. It controls withdrawals, not your deposits.
- It does not exist for unregistered projects. No registration means no declaration.
Where you can see it working
The declaration is part of the registration file. You can also watch the project's quarterly updates on the RERA website, required under section 11(1): bookings and construction status. Those are the two inputs to the proportion test, so a page that has not been updated for a long time is worth asking about.
Five calm questions to ask the builder
- Which bank holds this project's separate account, and is it only for this project?
- Who are the engineer, architect and chartered accountant certifying withdrawals?
- What completion percentage has been certified so far, and on what date?
- Was last year's audit under this rule completed?
- Is my payment plan linked to construction stages or to dates?
A worked example: matching your instalments to progress (illustrative)
The rule controls how the promoter withdraws money. Your payment plan controls when you pay it. Both matter. Take an illustrative flat with an agreement value of ₹75,00,000.
- Construction-linked plan: you pay, say, 10 per cent on agreement (₹7,50,000), then a share at each stage such as foundation, each slab and finishing. If the building stalls at the third slab, you have paid only for the stages reached.
- Time-linked plan: you pay on fixed dates, whatever the progress. If work slows, you may have paid ahead of the building.
Section 13(1) of RERA says a promoter cannot take more than 10 per cent of the cost as an advance or application fee before a written agreement for sale is registered. So in this example, no more than ₹7,50,000 should be paid before the agreement is registered.
Step by step: checking the rule on the RERA website
- Find the project on the Karnataka RERA website using the registration number.
- Check the promoter's name against the name on your booking form and agreement.
- Open the quarterly updates. Note the construction status and the date of the last update.
- Compare progress with what you have been asked to pay. If the demand runs well ahead of the reported progress, ask why.
- Keep dated screenshots of what you see, in case you need them later.
Common mistakes first-time buyers make
- Thinking the account is in their name. It is the promoter's account, controlled by the rule.
- Treating the rule as a guarantee. It lowers the risk of money being moved elsewhere. It does not remove all risk.
- Paying more than 10 per cent before the agreement. Section 13(1) limits this.
- Ignoring stale updates. A project page that has not changed for many months deserves a question.
- Not reading the payment plan. Know whether it is linked to stages or dates before you sign.
Your checklist before each instalment
- Is this demand linked to a stage, and has that stage been reached?
- Does the RERA page show matching progress?
- Am I paying into the account named in my agreement?
- Have I kept the receipt and the demand letter?
Why this rule helps first-home buyers most
First-home buyers often put most of their savings into one under-construction flat, with a loan on top. They have the least room for a project that stalls. The separate-account rule, read with section 13(1) and section 18, gives a clear framework: limited payment before agreement, money tied to the project, withdrawals tied to progress, and remedies for delay. Knowing these four pieces lets you ask the right questions calmly, before you pay, rather than after.
Reading a demand letter
When a demand letter arrives, check three things. First, the stage it names, such as a slab or brickwork, and whether that stage has been reached on site. Second, the percentage it asks for, against your agreement's payment schedule. Third, the account it asks you to pay into. If any of the three does not match, write back and ask before you pay. A clear reply from the builder is a good sign. Keep the letter, your payment proof and the builder's reply together in one folder.
None of these is rude or confidential. A builder who answers them easily is showing you the rule is part of how it works. When you plan instalments, our EMI calculator helps you see what each stage will mean for your monthly budget.