RERA Rules for Holding Project Funds in a Separate Escrow Account

Updated: July 15, 2026Published: July 11, 2026

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The End of Fund Diversion

Before RERA, a common disease in the real estate sector was developers using money collected for one tower to quietly fund land purchases for their next project. When the cash ran out, the original buyers were left stranded with stalled construction.

To prevent this massive financial mismanagement, RERA introduced one of its most powerful safeguards: the mandatory Escrow Account.

The 70% Escrow Rule Explained

Under Section 4(2)(l)(D) of the RERA Act, a promoter is legally required to deposit at least 70% of the funds collected from homebuyers into a separate, project-specific escrow account maintained with a scheduled bank.

  • Strict Permitted Use: The funds in this ring-fenced 70% account can only be used to cover the construction cost and the land cost of that specific project.
  • The Remaining 30%: The remaining 30% of collected funds goes to the developer's general use, covering marketing, overheads, and working capital.

The Multi-Layered Withdrawal Process

The escrow account does not simply hold your money; it restricts the builder from withdrawing it at will. Withdrawals must follow a strict stage-wise structure tied directly to physical construction progress.

To withdraw funds, the developer must obtain certifications from three independent professionals:

  1. An Engineer: To verify the physical progress of the construction.
  2. An Architect: To confirm the stage of development.
  3. A Chartered Accountant: To certify that the withdrawal amount is strictly proportional to the percentage of project completion.

This multi-layered verification ensures that cash only flows out as the towers genuinely rise.

Penalties for Misusing Escrow Funds

RERA enforces financial discipline with heavy consequences. If a developer mismanages project funds, they can face severe penalties.

The RERA Authority can impose fines of up to 5% of the project's estimated cost for fund misuse and even revoke the project's registration. In severe cases of fraud, the developer may also face up to three years of imprisonment and blacklisting.

Frequently Asked Questions

Q: Can a builder pledge the 70% escrow account to a bank for a loan?

A: Even if a developer pledges the escrow account as collateral, rulings have clarified that the lender cannot withdraw from it without fulfilling the Act's strict progress-linked conditions.

Q: Can the builder use the 70% funds for marketing the project?

A: No. Marketing costs, developer overheads, and expenses for other ventures cannot be paid from the 70% account. They must be covered by the developer's 30% share.

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