Executive Summary
The 70% escrow requirement is RERA's most significant financial safeguard for homebuyers. Promoters must deposit 70% of amounts realized from allottees in a separate escrow account, withdrawable only for land and construction costs. Key aspects:
- Deposit requirement: 70% of all amounts collected from allottees
- Permitted withdrawals: Only for land cost and construction expenses
- Certification requirement: Engineer and CA certification for withdrawals
- Violation penalty: Up to 5% of estimated project cost
- Fund diversion: Can lead to registration revocation
This guide analyzes escrow compliance requirements, permitted withdrawals, and consequences of violations.
1. Statutory Framework: Section 4(2)(l)(D)
Mandatory Escrow Deposit
Section 4(2)(l)(D) of RERA mandates that the promoter shall:
"deposit seventy percent of the amounts realised for the real estate project from the allottees, from time to time, in a separate account to be maintained in a scheduled bank to cover the cost of construction and the land cost and shall use it only for that purpose"
Key Elements
| Element |
Requirement |
| Deposit Percentage |
70% of amounts realized |
| Account Type |
Separate account in scheduled bank |
| Permitted Use |
Construction cost + Land cost only |
| Project-Specific |
Each project needs separate escrow |
2. Calculation of 70% Requirement
What Constitutes "Amounts Realized"?
| Included |
Excluded |
| Booking amounts |
Maintenance deposits (post-possession) |
| Installment payments |
Service tax/GST collected |
| Agreement execution payments |
Security deposits |
| Part payments |
Corpus fund contributions |
| Full and final payments |
|
Calculation Example
| Payment Stage |
Amount Received |
70% to Escrow |
| Booking |
₹10 lakhs |
₹7 lakhs |
| Agreement |
₹20 lakhs |
₹14 lakhs |
| Construction-linked |
₹50 lakhs |
₹35 lakhs |
| Total |
₹80 lakhs |
₹56 lakhs |
3. Escrow Account Requirements
Account Setup
| Requirement |
Specification |
| Bank Type |
Scheduled bank only |
| Account Name |
Project-specific naming |
| Signatories |
As per state rules (typically promoter + independent) |
| Disclosure |
Account details on RERA portal |
Account Operations
| Operation |
Requirement |
| Deposits |
Within 15 days of receipt from allottee |
| Statements |
Quarterly submission to Authority |
| Audit |
Annual audit by CA |
| Monitoring |
RERA Authority oversight |
4. Permitted Withdrawals from Escrow
Section 4(2)(l)(D) Permitted Purposes
Withdrawals are permitted ONLY for:
| Purpose |
Description |
| Land Cost |
Purchase price, stamp duty, registration |
| Construction Cost |
Materials, labor, contractor payments |
| Statutory Payments |
Approvals, NOCs, authority charges |
| Professional Fees |
Architects, engineers, consultants |
| Utilities |
Water, electricity connection charges |
Prohibited Withdrawals
| NOT Permitted |
| Office expenses of promoter |
| Marketing and advertising |
| Brokerage payments |
| Inter-project transfers |
| Promoter salaries/drawings |
| Loan repayments (except project-specific) |
| Land purchases for other projects |
5. Withdrawal Certification Requirements
Dual Certification System
Every withdrawal requires certification from:
1. Engineer's Certificate
| Content |
Verification |
| Stage of construction |
Physical progress verification |
| Amount commensurate |
Withdrawal matches construction stage |
| Utilization statement |
Previous withdrawal utilized properly |
2. Chartered Accountant's Certificate
| Content |
Verification |
| Project accounts review |
Fund utilization audit |
| Withdrawal justification |
Supporting documentation check |
| Compliance statement |
RERA provisions followed |
Most states prescribe formats including:
- Project registration number
- Withdrawal request details
- Construction stage certification
- Previous withdrawal utilization
- Professional certification with registration numbers
6. State Variations in Escrow Requirements
Comparative Analysis
| State |
Deposit % |
Special Requirements |
| Central Act |
70% |
Baseline requirement |
| Maharashtra |
70% |
Joint signatory with bank |
| Karnataka |
70% |
Quarterly audit mandatory |
| UP |
70% |
Progressive withdrawal linked to % completion |
| Gujarat |
70% |
Digital monitoring system |
| West Bengal |
70% |
State prescribed withdrawal schedule |
Withdrawal Limits by State
| State |
Withdrawal Cap per Stage |
| Maharashtra |
Per sanctioned plan stages |
| UP |
Linked to construction percentage |
| Karnataka |
Based on CA certification |
7. Escrow Violations and Penalties
Types of Violations
| Violation Type |
Description |
| Under-deposit |
Failing to deposit 70% |
| Unauthorized withdrawal |
Non-construction purposes |
| Fund diversion |
Inter-project transfer |
| False certification |
Fraudulent engineer/CA certificates |
| Account misuse |
Using funds for non-project expenses |
Penalty Framework
| Violation |
Consequence |
| First violation |
Penalty up to 5% of estimated project cost |
| Continued violation |
Additional daily penalty |
| Fund diversion |
Registration revocation under Section 7 |
| False certification |
Criminal proceedings possible |
8. Enforcement and Monitoring
RERA Authority Powers
| Power |
Scope |
| Audit direction |
Special audit of escrow accounts |
| Bank inquiries |
Direct access to account information |
| Freezing accounts |
In case of suspected violations |
| Investigation |
Detailed examination of transactions |
Allottee Complaint Rights
Allottees can file complaints regarding:
- Suspected fund diversion
- Non-maintenance of escrow
- Unauthorized withdrawals
- Project delay due to fund shortage
9. Best Practices for Escrow Compliance
For Developers
| Practice |
Benefit |
| Dedicated finance team |
Proper escrow management |
| Automated deposits |
70% calculation and transfer |
| Documentation system |
Withdrawal certification repository |
| Internal audit |
Regular compliance verification |
| Separate bank relationship |
Escrow-focused banking |
Documentation Requirements
10. Fund Diversion: Red Flags and Consequences
Red Flags Indicating Diversion
| Indicator |
Concern |
| Multiple projects, single account |
Potential inter-project transfer |
| Withdrawal without construction |
Funds not used for project |
| Payments to unrelated parties |
Non-project expenses |
| Cash withdrawals |
Lack of audit trail |
| Consultant payments exceeding norms |
Potential siphoning |
Consequences of Fund Diversion
- Immediate: Registration revocation
- Financial: Refund liability to all allottees with interest
- Criminal: Cheating/fraud charges under IPC
- Personal: Director liability for company violations
- Industry: Blacklisting from future registrations
11. Audit and Reporting Requirements
Quarterly Reporting
| Report Component |
Requirement |
| Opening balance |
Beginning of quarter |
| Deposits during quarter |
70% of collections |
| Withdrawals during quarter |
With purpose |
| Closing balance |
End of quarter |
| Construction progress |
Corresponding to withdrawals |
Annual Audit
| Audit Scope |
Coverage |
| 70% deposit compliance |
Full year verification |
| Withdrawal certification |
All withdrawals audited |
| Utilization verification |
Physical progress vs. funds used |
| Balance confirmation |
Bank confirmation |
12. Key Takeaways for Practitioners
70% is Mandatory: No discretion—all promoters must deposit 70% of collections in escrow.
Purpose is Limited: Escrow funds can ONLY be used for land and construction costs—nothing else.
Dual Certification Required: Both Engineer and CA must certify every withdrawal.
Fund Diversion is Serious: Can result in registration revocation and criminal prosecution.
Project-Specific Accounts: Each registered project needs its own escrow account.
Quarterly Reporting: Regular submission to RERA Authority is mandatory.
Allottee Standing: Homebuyers can complain about suspected escrow violations.
Conclusion
The 70% escrow requirement is RERA's cornerstone financial protection for homebuyers, ensuring that developer collections are substantially used for project construction. Compliance requires disciplined financial management, proper documentation, and dual professional certification for every withdrawal. Fund diversion or escrow misuse can result in severe consequences including registration revocation and criminal liability. Developers must treat escrow compliance as a non-negotiable operational requirement, while allottees should remain vigilant and exercise their right to seek information about escrow utilization.
