70% Escrow Rule: How to Structure Your RERA Project Account

The seventy-percent escrow rule under Section 4(2)(l)(D) of the Real Estate (Regulation and Development) Act, 2016 is the single most important financial discipline imposed on Indian real estate developers since Independence. It is also the provision that has most materially changed how projects are funded, how land is acquired, and how developers manage cash flows across a portfolio.

The rule is simple in statement and complex in execution. Seventy percent of amounts realised from allottees must be deposited in a separate project account. Withdrawals are permitted only to cover construction and land costs, and only in proportion to the percentage of completion of the project. Every withdrawal requires certifications by an engineer, an architect and a chartered accountant. The project account must be audited annually.

This guide unpacks what the rule actually requires in 2026, what compliant structures look like in practice, where developers commonly trip, and how to operationalise the escrow discipline without strangling legitimate business flexibility. It is written for CFOs, finance heads and developer principals.

1. The Plain Text of Section 4(2)(l)(D)

Section 4 requires the promoter to make a declaration supported by an affidavit at the time of registration. Clause (l)(D) of Section 4(2) requires the promoter to declare that:

"Seventy per cent of the amounts realised for the real estate project from the allottees, from time to time, shall be deposited in a separate account to be maintained in a scheduled bank to cover the cost of construction and the land cost and shall be used only for that purpose."

The provision continues: amounts may be withdrawn "in proportion to the percentage of completion of the project" and must be "certified by an engineer, an architect, and a chartered accountant in practice."

A further safeguard: the account shall be audited annually by a chartered accountant in practice, and the promoter must produce a statement of accounts duly certified and signed by the auditor, which should verify that the amounts collected and their proportionate withdrawals have been used for the project only.

Five operational obligations flow from this:

• Seventy-percent deposit into a separate scheduled-bank account.
• Use restricted to construction and land cost.
• Withdrawals proportionate to completion.
• Each withdrawal certified by three independent professionals.
• Annual audit by a CA.

2. What Counts as "Amounts Realised from Allottees"

"Amounts realised" is broader than the consideration in the agreement for sale. It includes:

• Booking amounts, allotment amounts, construction-linked payments.
• GST collected from allottees (which is statutorily part of the consideration).
• Any pre-EMI interest paid by the allottee directly to the developer.
• Modification charges, preferential location charges (PLC), and amenities charges.

It excludes:

• Stamp duty and registration fees, which flow directly to the state.
• TDS under Section 194-IA of the Income Tax Act, deposited directly with the government by the allottee.

Developer finance teams sometimes treat GST as outside "amounts realised" on the basis that GST flows through to the government. That is an incorrect reading. GST is part of the consideration, and collection triggers the seventy-percent deposit obligation on the gross amount.

3. The Three-Account Structure

In practice, most developers operate a three-account structure for each RERA project:

• Account 1 — Collection Account. Primary account where allottees remit payments.
• Account 2 — RERA Project Account (Escrow). The Section 4(2)(l)(D) account, into which seventy percent of each collection is deposited.
• Account 3 — Free Account. Thirty-percent of each collection is swept here, available for broader business use.

Banks have developed standardised products around this structure, with automatic sweeping between accounts at each collection. The sweep ratio is pre-configured and each transaction is logged.

The benefit of this structure is that the seventy-thirty split is mechanised rather than discretionary. It is far harder to err when the sweep is automatic.

4. Withdrawal Mechanics

Withdrawals from the RERA project account must be in proportion to the percentage of completion. The certification requirement is triple:

• Engineer's certificate. Confirming the percentage of construction completion based on physical inspection.
• Architect's certificate. Confirming the construction is progressing according to the approved plans.
• Chartered accountant's certificate. Confirming the financial compliance of the withdrawal against the approved project budget.

The three certifications together form the basis for the bank to process a withdrawal. Banks typically retain copies and will not process withdrawals without all three.

The percentage of completion is computed against the total project cost declared at registration. If the declared cost is ₹200 crore, and completion is at forty percent, then cumulative withdrawal should not exceed forty percent of seventy percent of amounts collected to date, subject to the overall cost ceiling.

This creates a constraint that developer finance teams must model carefully at the start of the project.

5. Land Cost Treatment

Land cost is a permitted use of project account funds. This matters because land is often acquired with debt or through JDA arrangements that require upfront payouts. Three sub-rules:

• Declared land cost at registration. The land cost recognised at registration is the cost that can be paid from the project account. Under-declaring the land cost to reduce perceived escrow obligation creates Section 60 risk.
• Repayment of land loans. Loans specifically taken for the project's land acquisition can be serviced from the project account because they are part of land cost. Group-company loans that were not specifically project-tied are not.
• JDA payouts. Payments to landowners under JDA revenue-share arrangements can be made from the project account only to the extent they constitute land cost, and only to the extent declared and documented.

6. Certificates and Documentation: The Audit Trail

A clean escrow operation maintains:

• Monthly bank reconciliation statements.
• A running withdrawal register with each withdrawal referenced to its engineer, architect and CA certificates.
• Copies of the three certificates stored in a defined format.
• Quarterly variance analysis: amounts collected vs. deposited, withdrawals vs. percentage completion.
• Annual CA audit report filed with the state RERA portal.

Developers who treat the escrow as a "set and forget" bank arrangement frequently discover during audits that certifications are missing, mid-project withdrawals were processed without all three signatures, or the percentage-of-completion documentation is inconsistent.

7. Annual Audit Under the Rules

State rules typically require:

• An annual audit of the project account by a CA in practice.
• Filing of an audit report on the RERA portal within a specified window after year-end (often six months).
• Disclosure of any deviations from the seventy-percent discipline.

The audit is not a rubber-stamp exercise. The CA must certify that withdrawals were proportionate to completion and used for permitted purposes. A qualified audit report is visible to the authority and can trigger enquiries.

Set Up Your RERA Escrow Compliance Stack

8. Bank-Side Documentation

Banks treat the RERA project account as a regulated product. A typical account-opening dossier includes:

• Certificate of incorporation of the developer.
• Board resolution authorising account opening and signatories.
• Copy of the RERA registration certificate.
• Form A (registration application) and Form B (declaration and affidavit).
• Appointment letters for the project engineer, architect and CA.
• Mandate documents for the seventy-thirty sweep arrangement.
• Specimen signatures and KYC for authorised signatories.

Most scheduled commercial banks have standardised master templates. Negotiating a bank-level RERA master agreement that applies to all current and future projects saves substantial time at each new project launch.

9. Common Escrow Errors

Consolidating enforcement patterns across state authorities, the following are the recurring escrow errors:

• Short-deposit. Depositing less than seventy percent of collections due to miscomputation (often around GST treatment).
• Cross-project diversion. Using Project A's escrow for Project B's land acquisition or construction.
• Withdrawal against future milestones. Withdrawing against expected completion rather than actual completion.
• Missing certifications. Processing withdrawals on single certification (often from a pliant in-house engineer).
• Land loan misuse. Servicing group-level working capital from the project account by dressing it up as land-cost repayment.
• Interest income treatment. Treating interest earned on the escrow as free cash rather than as project corpus.
• Under-declared cost. Declaring a lower project cost at registration and later crossing the ceiling on withdrawals.

Each of these creates Section 61 penalty exposure under the estimated-cost-linked ceiling.

10. Interaction with Project Finance

Many RERA projects are financed through construction loans from banks or NBFCs. The project finance layer interacts with the escrow in well-defined ways:

• Project lender as beneficiary of escrow. Lenders typically require a TRA (trust and retention account) structure overlaid on the RERA escrow, with the lender having visibility and first-call rights on surplus.
• Subordination. The project account remains subject to RERA discipline; the lender's rights are exercised consistent with RERA.
• Debt service. Servicing of project-specific construction loans is permitted from the project account as project cost, subject to declaration at registration.
• Group-level debt. Debt not specific to the project cannot be serviced from the project account.

A common structure: the RERA escrow, the construction-linked payment plan and the lender's drawdown schedule are aligned at the start of the project, with a single waterfall document that pulls all three together.

11. Interaction with JDA Structures

Joint development agreements add complexity to the escrow. Landowner revenue share or area share under a JDA must be factored into:

• The declared land cost at registration.
• The withdrawal structure from the project account.
• Disclosures in the agreement for sale regarding landowner share.
• Compliance with Section 15 if there is any change in the promoter structure.

A JDA that is not disclosed fully at RERA registration creates a latent Section 60 risk if the structure later surfaces.

12. Tax Implications

Two tax interactions matter:

• Section 194-IA TDS. The allottee is required to deduct TDS at one percent on any consideration above ₹50 lakh. This TDS is deposited directly with the government by the allottee and does not flow through the developer's account.
• Income recognition. For the developer, income from the project is recognised under the percentage-of-completion method or the completed-contract method, depending on accounting policy. The escrow discipline does not directly change income recognition but affects the cash availability for tax payment.

13. Operational Discipline: A Monthly Routine

A clean monthly escrow discipline:

• Reconciliation of collection account with agreement-for-sale schedules.
• Verification of the seventy-thirty sweep.
• Update of the withdrawal register.
• Verification of engineer, architect and CA certifications for any withdrawal in the month.
• Update of the percentage-of-completion number against the project plan.
• Exception report: any collections not swept, any withdrawal without certification, any variance from budget.

This is a two-hour monthly finance meeting. Its absence is frequently the direct cause of six-figure penalties at year-end.

14. Board-Level Reporting

At board level, the escrow report should include:

• Project-wise escrow balances.
• Cumulative collections, deposits, withdrawals.
• Percentage of completion vs. percentage of collection.
• Upcoming withdrawal expectations and certification status.
• Annual audit findings and remediation.

A board that has visibility on these numbers cannot later claim ignorance of compliance status.

15. A Practical Example

Consider a ₹200 crore project with 100 apartments, expected completion over thirty-six months. At month 18, cumulative collections are ₹90 crore. Under the seventy-percent rule:

• ₹63 crore must be in the project account (70% of ₹90 crore).
• ₹27 crore is in the free account.

If actual construction completion at month 18 is forty percent, cumulative withdrawal from the project account is capped at forty percent of ₹63 crore, i.e. ₹25.2 crore. If the developer has already withdrawn ₹35 crore, there is an over-withdrawal of ₹9.8 crore — a direct Section 4(2)(l)(D) breach.

Catching this at month 18 is routine; catching it at year-end during the audit is a regulatory problem.

Model Your Project's Escrow Waterfall

16. A Checklist for Multi-Project Developers

• Per-project collection, escrow and free accounts with auto-sweep.
• Bank-master RERA agreement across scheduled banks.
• Standard engineer, architect and CA appointment letters.
• Monthly reconciliation template.
• Quarterly board reporting template.
• Annual CA audit filing calendar.
• Integration between escrow and RERA portal quarterly disclosures.
• Clear treatment of GST, land cost and project finance in the declared cost.

Frequently Asked Questions

Does the seventy-percent rule apply to amounts received before the allottee signs the agreement for sale?▾

Yes. Section 4(2)(l)(D) refers to "amounts realised for the real estate project from the allottees." This includes booking amounts, allotment amounts and any other collections from the allottee regardless of whether the agreement for sale has been executed. The key trigger is that the amount is realised for the project from a person who is (or will become) an allottee. The seventy-percent deposit obligation begins with the first collection.

Can interest earned on the project account balance be withdrawn for other purposes?▾

No. Interest earned on the project account balance is treated as part of the project corpus and is subject to the same Section 4(2)(l)(D) discipline. It cannot be swept out as free cash. Some developers have attempted to structure it as a "return on the escrow" and move it to the free account; state authorities have treated this as a breach. The cleaner approach is to deploy the escrow in a liquid, interest-bearing sub-account of the scheduled bank, with the interest accruing back into the project account.

What happens if actual construction progress slows and we cannot withdraw at the declared percentage?▾

The percentage-of-completion ceiling is a ceiling, not a floor. If construction slows and the percentage of completion is lower than anticipated, withdrawals slow correspondingly. This can create cash-flow strain for the developer. The solution is not to manipulate certifications but to either restructure project finance, slow down the construction-linked payment plan (with allottee consent and RERA approvals), or bring in additional equity. Certifying a higher percentage of completion than reality to justify a withdrawal is Section 60 (false information) territory.

Are amounts from the sale of unsold inventory after the initial launch also subject to the seventy-percent rule?▾

Yes. The rule applies to amounts realised for the project from allottees, regardless of whether the sale happened at launch or later. Every unit sold creates a fresh collection subject to the seventy-percent deposit. Developers occasionally assume that amounts from late-stage sales can flow more freely because the project is near completion; this is incorrect and has been a source of enforcement findings.

Can we change the engineer, architect or CA mid-project for escrow certifications?▾

Yes, subject to proper documentation. A change of professional should be supported by a board resolution, a letter of disengagement and a fresh appointment letter. The state RERA portal should be updated to reflect the change. Banks typically require updated appointment letters before they will accept certifications from the new professional. Mid-project changes often occur due to retirement, change of firm, or disqualification; the documentation discipline ensures continuity of the audit trail.

Is the seventy-percent discipline different for commercial projects versus residential?▾

No. Section 4(2)(l)(D) applies to all real estate projects as defined in Section 2(zn), whether residential, commercial or mixed-use. The rule does not vary by asset class. In commercial projects, the payment structures are often more front-loaded (larger deposits), which means the seventy-percent obligation is proportionally more binding in early stages. Developers of large commercial assets should be especially careful to structure cash flow around this constraint.

Can an external agency receive and hold the seventy-percent escrow on behalf of the developer?▾

The Act requires the account to be maintained in a scheduled bank in the name of the promoter for the project. The funds cannot be held by an external agency, trust or SPV outside the scheduled-bank account structure. Some developers have experimented with trustee-held arrangements; these are generally not compliant unless overlaid on a scheduled-bank RERA account. The name of the account should clearly identify the promoter and the RERA-registered project to which the account pertains.