{"id":4867,"date":"2026-06-30T14:59:25","date_gmt":"2026-06-30T09:29:25","guid":{"rendered":"https:\/\/cashfree.com\/blog\/?p=4867"},"modified":"2026-06-30T14:59:31","modified_gmt":"2026-06-30T09:29:31","slug":"escrow-account-in-india","status":"publish","type":"post","link":"https:\/\/blogrevamp.cashfree.com\/escrow-account-in-india\/","title":{"rendered":"Escrow Account In India: Examples, Benefits &#038; How to Open"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_81 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6a8f1a46b80b7\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #364250;color:#364250\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #364250;color:#364250\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6a8f1a46b80b7\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/blogrevamp.cashfree.com\/escrow-account-in-india\/#What_is_an_Escrow_Account_Meaning_Definition\" >What is an Escrow Account? Meaning &amp; Definition<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/blogrevamp.cashfree.com\/escrow-account-in-india\/#Why_Do_You_Need_An_Escrow_Account_In_India\" >Why Do You Need An Escrow Account In India?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/blogrevamp.cashfree.com\/escrow-account-in-india\/#How_To_Open_An_Escrow_Account_In_India\" >How To Open An Escrow Account In India?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/blogrevamp.cashfree.com\/escrow-account-in-india\/#Escrow_Account_Charges_in_India\" >Escrow Account Charges in India<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/blogrevamp.cashfree.com\/escrow-account-in-india\/#Examples_of_Escrow_Accounts_in_India\" >Examples of Escrow Accounts in India<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/blogrevamp.cashfree.com\/escrow-account-in-india\/#Lets_have_a_look_at_some_of_the_examples_of_an_escrow_account_in_India\" >Let\u2019s have a look at some of the examples of an escrow account in India.<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/blogrevamp.cashfree.com\/escrow-account-in-india\/#Escrow_Account_In_India_Vs_Nodal_Account\" >Escrow Account In India Vs Nodal Account<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/blogrevamp.cashfree.com\/escrow-account-in-india\/#Advantages_Of_Having_An_Escrow_Account\" >Advantages Of Having An Escrow Account<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/blogrevamp.cashfree.com\/escrow-account-in-india\/#Guidelines_Set_by_Authorities_around_Escrow_Accounts_in_India\" >Guidelines Set by Authorities around Escrow Accounts in India<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/blogrevamp.cashfree.com\/escrow-account-in-india\/#Wrap_Up\" >Wrap Up:<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-11\" href=\"https:\/\/blogrevamp.cashfree.com\/escrow-account-in-india\/#Frequently_Asked_Questions_On_Escrow_Accounts_in_India\" >Frequently Asked Questions On Escrow Accounts in India<\/a><\/li><\/ul><\/nav><\/div>\n\t\t<div data-elementor-type=\"wp-post\" data-elementor-id=\"4867\" class=\"elementor elementor-4867\">\n\t\t\t\t\t\t<section class=\"elementor-section elementor-top-section elementor-element elementor-element-7927c789 elementor-section-boxed elementor-section-height-default elementor-section-height-default\" data-id=\"7927c789\" data-element_type=\"section\" data-e-type=\"section\">\n\t\t\t\t\t\t<div class=\"elementor-container elementor-column-gap-default\">\n\t\t\t\t\t<div class=\"elementor-column elementor-col-100 elementor-top-column elementor-element elementor-element-7ed77a50\" data-id=\"7ed77a50\" data-element_type=\"column\" data-e-type=\"column\">\n\t\t\t<div class=\"elementor-widget-wrap elementor-element-populated\">\n\t\t\t\t\t\t<div class=\"elementor-element elementor-element-5fd867cc elementor-widget elementor-widget-text-editor\" data-id=\"5fd867cc\" data-element_type=\"widget\" data-e-type=\"widget\" data-widget_type=\"text-editor.default\">\n\t\t\t\t<div class=\"elementor-widget-container\">\n\t\t\t\t\t\t\t\t\t<h2><span class=\"ez-toc-section\" id=\"What_is_an_Escrow_Account_Meaning_Definition\"><\/span>What is an Escrow Account? Meaning &amp; Definition<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>An escrow account is a temporary secure account where a third party (usually an escrow agent) holds funds or assets on behalf of two parties. Under RBI and Indian contract law, these accounts protect both buyers and sellers by releasing funds only when agreed conditions are fulfilled. Escrow accounts act as a safety net for high-value transactions, commonly used in real estate and online sales. An escrow account in India helps prevent fraud and is essential for people conducting major financial transactions where trust must be established before payment.<\/p>\n<p><img fetchpriority=\"high\" decoding=\"async\" data-recalc-dims=\"1\" src=\"https:\/\/i0.wp.com\/blogrevamp.cashfree.com\/wp-content\/uploads\/2026\/02\/What-is-Escrow-Account-in-India.png?resize=770%2C544&#038;ssl=1\" alt=\"What is Escrow Account\" width=\"770\" height=\"544\" \/><\/p>\n<p><!-- \/wp:heading --><\/p>\n<p><!-- wp:paragraph --><\/p>\n<p><!-- \/wp:paragraph --><\/p>\n<p><!-- wp:paragraph --><\/p>\n<p><!-- \/wp:paragraph --><\/p>\n<p><!-- wp:image {\"width\":750,\"height\":529} --><\/p>\n<figure><span style=\"font-weight: 400;\">It is a reserve account that also serves as an intermediary between the buyer and the seller.<\/span><\/figure>\n<p><span style=\"font-weight: 400;\">Interestingly, this account is not just limited to funds. Escrow account opening can be used for various types of assets, such as cash, stocks, and funds. It provides assurance to both parties. An escrow account in India is mostly used for real estate transactions (especially under RERA) to release funds once the entire construction is completed. Additionally, it is used in online marketplaces and e-commerce to hold buyer payments until the requested goods or services are delivered.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Opening escrow in India is also beneficial for large B2B contracts, government-level infrastructure projects, and intellectual or asset transfers that require prepayment verification. An escrow account is beneficial whenever there are concerns about trust, compliance, and payment protection in high-value or time-bound transactions.<\/span><\/p>\n<p><!-- \/wp:paragraph --><\/p>\n<p><!-- wp:paragraph --><\/p>\n<p><!-- \/wp:paragraph --><\/p>\n<p><!-- wp:heading {\"otterConditions\":[]} --><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Why_Do_You_Need_An_Escrow_Account_In_India\"><\/span>Why Do You Need An Escrow Account In India?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><!-- \/wp:heading --><\/p>\n<p><!-- wp:paragraph --><\/p>\n<p>You may need an escrow account in case of:<\/p>\n<p><!-- \/wp:paragraph --><\/p>\n<p><!-- wp:list --><\/p>\n<ul>\n<li style=\"list-style-type: none;\">\n<ul><!-- wp:list-item --><\/ul>\n<\/li>\n<\/ul>\n<p>A large transaction (between two or more parties)<\/p>\n<p><!-- \/wp:list-item --><\/p>\n<p><!-- wp:list-item --><\/p>\n<ul>\n<li style=\"list-style-type: none;\">\n<ul>\n<li>that have some legal obligations attached to them<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p><!-- \/wp:list-item --><\/p>\n<p><!-- wp:list-item --><\/p>\n<ul>\n<li style=\"list-style-type: none;\">\n<ul>\n<li>which need to be fulfilled before the release of the payment or an asset.<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p><!-- \/wp:list-item --><\/p>\n<p><!-- \/wp:list --><\/p>\n<p><!-- wp:paragraph --><\/p>\n<p>Here\u2019s an example:<\/p>\n<p><!-- \/wp:paragraph --><\/p>\n<p><!-- wp:paragraph --><\/p>\n<p>Let\u2019s say you are a construction builder and aim to sell apartments. Now, let\u2019s assume that you aim to get these apartments booked by customers before they are ready to move in.\u00a0<\/p>\n<p><!-- \/wp:paragraph --><\/p>\n<p><!-- wp:paragraph --><\/p>\n<p>Naturally, there are transaction risks-\u00a0<\/p>\n<p><!-- \/wp:paragraph --><\/p>\n<p><!-- wp:list --><\/p>\n<ul>\n<li style=\"list-style-type: none;\">\n<ul><!-- wp:list-item --><\/ul>\n<\/li>\n<\/ul>\n<p>The customer may not want to pay the full amount before possession<\/p>\n<p><!-- \/wp:list-item --><\/p>\n<p><!-- wp:list-item --><\/p>\n<ul>\n<li style=\"list-style-type: none;\">\n<ul>\n<li>There is a risk of scams (money being redirected to other avenues)<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p><!-- \/wp:list-item --><\/p>\n<p><!-- wp:list-item --><\/p>\n<ul>\n<li style=\"list-style-type: none;\">\n<ul>\n<li>Customers may be wary if pre-determined conditions are not fulfilled<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p><!-- \/wp:list-item --><\/p>\n<p><!-- \/wp:list --><\/p>\n<p><!-- wp:paragraph --><\/p>\n<p><em>(Here\u2019s an example of a predetermined condition. As a construction builder, you might have promised free home appliances at the time of house possession.)<\/em><\/p>\n<p><!-- \/wp:paragraph --><\/p>\n<p><!-- wp:paragraph --><\/p>\n<p>Here\u2019s where an escrow account in India steps in.<\/p>\n<p><!-- \/wp:paragraph --><\/p>\n<p><!-- wp:paragraph --><\/p>\n<p>It reduces the risk of fraud as it acts as the third party between the two parties. Moreover, it helps control the cash flow between the two parties.\u00a0<\/p>\n<p><!-- \/wp:paragraph --><\/p>\n<p><!-- wp:paragraph --><\/p>\n<p>Additionally, since September 2022, escrow accounts have become indispensable for <mark style=\"background-color: rgba(0, 0, 0, 0);\">co-lending<\/mark> use cases.\u00a0<\/p>\n<p><!-- \/wp:paragraph --><\/p>\n<p><!-- wp:paragraph --><\/p>\n<p>According to the <a href=\"https:\/\/www.cashfree.com\/blog\/digital-lending-guidelines\/?utm_source=blog&amp;utm_medium=organic&amp;utm_campaign=escrow_account_in_india_blog\" target=\"_blank\" rel=\"noreferrer noopener\"><strong><mark style=\"background-color: rgba(0, 0, 0, 0);\">digital lending<\/mark><\/strong><\/a> guidelines by RBI, all loan repayment and disbursement must be done directly between the bank account of the lender and borrower. This means that no third party pass-through account can be used by banks, <a href=\"https:\/\/www.cashfree.com\/blog\/cashfree-payments-lending-solutions\/?utm_source=blog&amp;utm_medium=organic&amp;utm_campaign=escrow_account_in_india_blog\" target=\"_blank\" rel=\"noreferrer noopener\"><strong><mark style=\"background-color: rgba(0, 0, 0, 0);\">NBFCs or lending service providers (LSPs)<\/mark><\/strong><\/a>.<\/p>\n<p><!-- \/wp:paragraph --><\/p>\n<p><!-- wp:paragraph --><\/p>\n<p>However, co-lending use cases are an exception to this rule.\u00a0<br \/>In other terms,<a href=\"https:\/\/docs.cashfree.com\/docs\/co-lending\" target=\"_blank\" rel=\"noreferrer noopener\"> <strong><mark style=\"background-color: rgba(0, 0, 0, 0);\">co-lending<\/mark><\/strong><\/a><strong> players (like banks and NBFCs) can use escrow accounts <\/strong>to pool funds before disbursing to borrowers.<\/p>\n<p><!-- \/wp:paragraph --><\/p>\n<p><!-- wp:paragraph --><\/p>\n<p><strong><em><mark style=\"background-color: rgba(0, 0, 0, 0);\"><a href=\"https:\/\/www.cashfree.com\/blog\/co-lending-101-how-to-kickstart-your-co-lending-journey\/?utm_source=blog&amp;utm_medium=organic&amp;utm_campaign=escrow_account_in_india_blog\" target=\"_blank\" rel=\"noreferrer noopener\">Related Read: How to Kickstart Your Co-Lending Journey?<\/a><\/mark><\/em><\/strong><\/p>\n<p><!-- \/wp:paragraph --><\/p>\n<p><!-- wp:image {\"id\":13341,\"sizeSlug\":\"large\",\"linkDestination\":\"custom\"} --><\/p>\n<figure><a href=\"https:\/\/merchant.cashfree.com\/merchants\/signup?utm_source=blog&amp;utm_medium=organic&amp;utm_campaign=blog\/\" target=\"_blank\" rel=\"noreferrer noopener\"><img decoding=\"async\" data-recalc-dims=\"1\" src=\"https:\/\/i0.wp.com\/blogrevamp.cashfree.com\/wp-content\/uploads\/2022\/11\/cta-rbi-compliant.png?resize=770%2C86&#038;ssl=1\" alt=\"Escrow Account\" width=\"770\" height=\"86\" \/><\/a><\/figure>\n<p><!-- \/wp:image --><\/p>\n<p><!-- wp:heading {\"otterConditions\":[]} --><\/p>\n<h2><span class=\"ez-toc-section\" id=\"How_To_Open_An_Escrow_Account_In_India\"><\/span>How To Open An Escrow Account In India?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><!-- \/wp:heading --><\/p>\n<p><!-- wp:paragraph --><\/p>\n<p>Here\u2019s the escrow account opening procedure in India:<\/p>\n<p><!-- \/wp:paragraph --><\/p>\n<p><!-- wp:image --><\/p>\n<figure><\/figure>\n<p><span style=\"font-weight: 400;\">The process of an escrow account is very straightforward. Every online transaction carries risk for both buyer and seller. To mitigate the risk, the government has mandated that high-value transactions be processed through an escrow account.\u00a0<\/span><\/p>\n<ol>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\"><strong>Agreement<\/strong>: The buyer, seller, and the third-party agent (i.e, the escrow agent) all come together to discuss the terms and conditions under which the funds would be released.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\"><strong>Deposit<\/strong>: Once agreed, the buyer deposits the payment as per the agreement into the escrow account.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\"><strong>Retention Duration<\/strong>: During this time, the funds are securely held with the escrow agent, who holds the funds till the time of final payment.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\"><strong>Condition Fulfilment<\/strong>: Both parties work on fulfilling the terms and conditions created, such as completing and submitting the documents, arranging the finances, or delivering the consignment as promised.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\"><strong>Checking and verifying<\/strong>: Once the escrow agent confirms that the buyer and seller have adhered to all terms and conditions, the agent prepares to release the funds.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\"><strong>Payout<\/strong>: As agreed upon, once all terms and conditions are met, the escrow agent disburses the funds or assets to the buyer<\/span><\/li>\n<\/ol>\n<p><span style=\"font-weight: 400;\">Cashfree escrow account understands the importance of the buyer\u2019s funds and ensures to protect the funds till all terms and conditions are met by both the buyer and the seller. <\/span><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Escrow_Account_Charges_in_India\"><\/span><strong>Escrow Account Charges in India<\/strong><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>The charges for an escrow account vary based on the bank or financial institution. The fees typically depend on factors such as:<\/p>\n<ul>\n<li>\n<p><strong>Duration of the account<\/strong>: The longer the escrow account is maintained, the higher the charges.<\/p>\n<\/li>\n<li>\n<p><strong>Transaction value<\/strong>: Larger transactions may incur higher fees.<\/p>\n<\/li>\n<li>\n<p><strong>Service charges<\/strong>: Banks typically charge for administrative tasks like monitoring and transferring funds.<\/p>\n<\/li>\n<\/ul>\n<p>For instance, some banks might charge 0.5% to 2% of the total transaction amount. Always verify the charges with your bank before opening an escrow account.<\/p>\n<p><!-- \/wp:paragraph --><\/p>\n<p><!-- wp:heading {\"otterConditions\":[]} --><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Examples_of_Escrow_Accounts_in_India\"><\/span><span style=\"font-size: 30.9985px;\">Examples of Escrow Accounts in India<\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<h2><span class=\"ez-toc-section\" id=\"Lets_have_a_look_at_some_of_the_examples_of_an_escrow_account_in_India\"><\/span><span style=\"color: rgba(0, 0, 0, 0.74); font-size: 19px; font-weight: 400;\">Let\u2019s have a look at some of the examples of an escrow account in India.<\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><!-- \/wp:paragraph --><\/p>\n<p><!-- wp:image --><\/p>\n<p><!-- \/wp:image --><\/p>\n<p><!-- wp:heading {\"level\":3,\"otterConditions\":[]} --><\/p>\n<h3>Escrow Accounts For Real Estate<\/h3>\n<p><!-- \/wp:heading --><\/p>\n<p><!-- wp:paragraph --><\/p>\n<p>This is an industry most associated with the term &#8216;escrow account&#8217;.<\/p>\n<p><!-- \/wp:paragraph --><\/p>\n<p><!-- wp:paragraph --><\/p>\n<p>After all, buying or leasing a property is a massive transaction that requires trust. The seller needs to assure the buyer that they will get possession without hassle. On the other hand, the buyer needs to assure of timely payment.<\/p>\n<p><!-- \/wp:paragraph --><\/p>\n<p><!-- wp:paragraph --><\/p>\n<p>In recent times, many developers have defaulted on their promises.<\/p>\n<p><!-- \/wp:paragraph --><\/p>\n<p><!-- wp:paragraph --><\/p>\n<p>To ensure regulation of the real estate industry, the Government of India made escrow accounts mandatory for real estate transactions. In fact, the <em>Real Estate (Regulation and Development) Act, of 2016<\/em><sup><a href=\"https:\/\/en.wikipedia.org\/wiki\/Real_Estate_(Regulation_and_Development)_Act,_2016\" target=\"_blank\" rel=\"noreferrer noopener nofollow\">1<\/a><\/sup> require real estate builders to keep 70% of the customer funds in an escrow account.<\/p>\n<p><!-- \/wp:paragraph --><\/p>\n<p><!-- wp:paragraph --><\/p>\n<p>Therefore, this is quite a &#8216;win-win&#8217; situation for both parties.<\/p>\n<p><!-- \/wp:paragraph --><\/p>\n<p><!-- wp:list --><\/p>\n<ul>\n<li style=\"list-style-type: none;\">\n<ul><!-- wp:list-item --><\/ul>\n<\/li>\n<\/ul>\n<ul>\n<li style=\"list-style-type: none;\">\n<ul>\n<li>The buyer can assure the seller that they have the necessary funds<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p><!-- \/wp:list-item --><\/p>\n<p><!-- wp:list-item --><\/p>\n<ul>\n<li style=\"list-style-type: none;\">\n<ul>\n<li>The seller can assure the buyer that they are using the fund only for the desired purpose: the construction of said real estate<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p><!-- \/wp:list-item --><\/p>\n<p><!-- \/wp:list --><\/p>\n<p><!-- wp:heading {\"level\":3,\"otterConditions\":[]} --><\/p>\n<h3>Co-Lending NBFC and Fintech Players<\/h3>\n<p><!-- \/wp:heading --><\/p>\n<p><!-- wp:paragraph --><\/p>\n<p>NBFCs, fintechs and other LSPs can use these accounts to pool their funds before disbursement to customers.\u00a0<\/p>\n<p><!-- \/wp:paragraph --><\/p>\n<p><!-- wp:paragraph --><\/p>\n<p>Let\u2019s take the example of two NBFCs titled A and B that have a co-lending partnership. Here, the borrower \u2018Jane Doe\u2019 applies for a loan of Rs. 10 Lakhs.\u00a0<\/p>\n<p><!-- \/wp:paragraph --><\/p>\n<p><!-- wp:paragraph --><\/p>\n<p>NBFC &#8216;A&#8217; might lend 80% of the funds and NBFC &#8216;B&#8217; lends the remaining 20%.\u00a0<\/p>\n<p><!-- \/wp:paragraph --><\/p>\n<p><!-- wp:paragraph --><\/p>\n<p>This is where they require a pass-through account (aka an <a href=\"https:\/\/www.cashfree.com\/nbfc-digital-lending-solutions\/?utm_source=blog&amp;utm_medium=organic&amp;utm_campaign=escrow_account_in_india_blog\" target=\"_blank\" rel=\"noreferrer noopener\"><strong><mark style=\"background-color: rgba(0, 0, 0, 0);\">escrow account<\/mark><\/strong><\/a>) wherein they can pool the funds before disbursing to Jane Doe.<\/p>\n<p><!-- \/wp:paragraph --><\/p>\n<p><!-- wp:heading {\"level\":3,\"otterConditions\":[]} --><\/p>\n<h3>Mergers And Acquisitions<\/h3>\n<p><!-- \/wp:heading --><\/p>\n<p><!-- wp:paragraph --><\/p>\n<p>Let\u2019s say that Company A acquires Company B.<\/p>\n<p><!-- \/wp:paragraph --><\/p>\n<p><!-- wp:paragraph --><\/p>\n<p>Now, there are a lot of aspects in takeover proceedings. Company B might have to transfer:<\/p>\n<p><!-- \/wp:paragraph --><\/p>\n<p><!-- wp:list --><\/p>\n<ul>\n<li style=\"list-style-type: none;\">\n<ul><!-- wp:list-item --><\/ul>\n<\/li>\n<\/ul>\n<ul>\n<li style=\"list-style-type: none;\">\n<ul>\n<li>All the assets<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p><!-- \/wp:list-item --><\/p>\n<p><!-- wp:list-item --><\/p>\n<ul>\n<li style=\"list-style-type: none;\">\n<ul>\n<li>Company resources (even employees)<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p><!-- \/wp:list-item --><\/p>\n<p><!-- wp:list-item --><\/p>\n<ul>\n<li style=\"list-style-type: none;\">\n<ul>\n<li>Paperwork and required documents<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p><!-- \/wp:list-item --><\/p>\n<p><!-- \/wp:list --><\/p>\n<p><!-- wp:paragraph --><\/p>\n<p>Evidently, the takeover will not be complete if Company B does not finalize the handover. Moreover, the company may facilitate the asset transfer in batches over time.<\/p>\n<p><!-- \/wp:paragraph --><\/p>\n<p><!-- wp:paragraph --><\/p>\n<p>In such a situation, an escrow account in India helps reassure both parties. It maintains trust between the players and ensures that both parties hold up their part of the deal.<\/p>\n<p><!-- \/wp:paragraph --><\/p>\n<p><!-- wp:paragraph --><\/p>\n<p>Once the stakeholders (or the governments) approve the merger, the exchange of the cash and documents occurs with escrow accounts.<\/p>\n<p><!-- \/wp:paragraph --><\/p>\n<p><!-- wp:heading {\"level\":3,\"otterConditions\":[]} --><\/p>\n<h3>Rental Deposit<\/h3>\n<p><!-- \/wp:heading --><\/p>\n<p><!-- wp:paragraph --><\/p>\n<p>Rental deposits are another use case. More often than not, landlords require a security deposit. Once the tenant vacates the rental property, the landlord has to return the deposit.<\/p>\n<p><!-- \/wp:paragraph --><\/p>\n<p><!-- wp:paragraph --><\/p>\n<p>An escrow account assures the buyer of the safety of their security deposit. Moreover, it assures the landlord that they are dealing with verified parties.\u00a0<\/p>\n<p><!-- \/wp:paragraph --><\/p>\n<p><!-- wp:paragraph --><\/p>\n<p>Here is how the process goes:<\/p>\n<p><span style=\"font-size: 19px;\">1. The landlord and tenant agree on the terms required for the account.<\/span><\/p>\n<p><span style=\"font-size: 19px;\">2. The tenant transfers the security deposit.<\/span><\/p>\n<p><span style=\"font-size: 19px;\">3. The agreement might permit partial withdrawal of the security deposit as per the conditions.<\/span><\/p>\n<p><span style=\"font-size: 19px;\">4. The landlord transfers the deposit back to the buyer once they stop the property possession.<\/span><\/p>\n<p><!-- \/wp:list-item --><\/p>\n<p><!-- \/wp:list --><\/p>\n<p><!-- wp:heading {\"level\":3,\"otterConditions\":[]} --><\/p>\n<h3>Auctions<\/h3>\n<p><!-- \/wp:heading --><\/p>\n<p><!-- wp:paragraph --><\/p>\n<p>Some people participate in online auctions to buy assets through banks. These banks serve as escrow accounts between the auction and the buyer.<\/p>\n<p><!-- \/wp:paragraph --><\/p>\n<p><!-- wp:heading {\"level\":3,\"otterConditions\":[]} --><\/p>\n<h3>Software<\/h3>\n<p><!-- \/wp:heading --><\/p>\n<p><!-- wp:paragraph --><\/p>\n<p>Using an escrow account for your software keeps the source code confidential.\u00a0<\/p>\n<p><!-- \/wp:paragraph --><\/p>\n<p><!-- wp:paragraph --><\/p>\n<p>When someone buys your software through an escrow account, it gives you the right price and keeps your source code secure.\u00a0<\/p>\n<p><!-- \/wp:paragraph --><\/p>\n<p><!-- wp:paragraph --><\/p>\n<p>On the other side, the buyer gets exclusive user rights, and it assures to provide the required source code even if the developer stops working.<\/p>\n<p><!-- \/wp:paragraph --><\/p>\n<p><!-- wp:heading {\"level\":3,\"otterConditions\":[]} --><\/p>\n<h3>Freelancers<\/h3>\n<p><!-- \/wp:heading --><\/p>\n<p><!-- wp:paragraph --><\/p>\n<p>Many major websites act as escrow accounts between the freelancer and the employer.<\/p>\n<p><!-- \/wp:paragraph --><\/p>\n<p><!-- wp:paragraph --><\/p>\n<p>The websites help freelancers work with an employer without losing money. If the freelancer&#8217;s work is satisfactory, the website transfers the money to the freelancer.<\/p>\n<p><!-- \/wp:paragraph --><\/p>\n<p><!-- wp:heading {\"level\":3,\"otterConditions\":[]} --><\/p>\n<h3>Cryptocurrencies<\/h3>\n<p><!-- \/wp:heading --><\/p>\n<p><!-- wp:paragraph --><\/p>\n<p>Bitcoins or cryptocurrencies are the latest market trends.\u00a0<\/p>\n<p><!-- \/wp:paragraph --><\/p>\n<p><!-- wp:paragraph --><\/p>\n<p>Many people hesitate to invest in this as it is still not legal in many countries. In such cases, the transactors provide an escrow account to the buyer due to the trust issues revolving around the same.\u00a0<\/p>\n<p><!-- \/wp:paragraph --><\/p>\n<p><!-- wp:paragraph --><\/p>\n<p>Every transaction which involves buying and selling can make use of escrow services.<\/p>\n<p><!-- \/wp:paragraph --><\/p>\n<p><!-- wp:paragraph --><\/p>\n<p>Given below are some additional examples that require an escrow account in India.<\/p>\n<ul>\n<li><span style=\"font-size: 19px;\">Conservation of assets<\/span><\/li>\n<li><span style=\"font-size: 19px;\">Capital Fundraising<\/span><\/li>\n<li><span style=\"font-size: 19px;\">Fundraising for charities<\/span><\/li>\n<li><span style=\"font-size: 19px;\">Gambling\/betting<\/span><\/li>\n<li><span style=\"font-size: 19px;\">Legal agreements<\/span><\/li>\n<li><span style=\"font-size: 19px;\">Stock market trading<\/span><\/li>\n<li><span style=\"font-size: 19px;\">Asset transactions<\/span><\/li>\n<li><span style=\"font-size: 19px;\">Valuable private trades<\/span><\/li>\n<li><span style=\"font-size: 19px;\">Government-backed loans<\/span><\/li>\n<li><span style=\"font-size: 19px;\">Insurance payments\u00a0<\/span><\/li>\n<\/ul>\n<p><!-- \/wp:list-item --><\/p>\n<p><!-- \/wp:list --><\/p>\n<p><!-- wp:heading {\"otterConditions\":[]} --><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Escrow_Account_In_India_Vs_Nodal_Account\"><\/span>Escrow Account In India Vs Nodal Account<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><!-- \/wp:heading --><\/p>\n<p><!-- wp:paragraph --><\/p>\n<p>Now that we have covered examples of an escrow account in India, it\u2019s time to move on to something equally important.<\/p>\n<p><!-- \/wp:paragraph --><\/p>\n<p><!-- wp:paragraph --><\/p>\n<p>What is the difference between an escrow account and a <a href=\"https:\/\/cashfree.com\/blog\/nodal-account\/?utm_source=blog&amp;utm_medium=organic&amp;utm_campaign=escrow_account_in_india_blog\" target=\"_blank\" rel=\"noreferrer noopener\"><strong><mark style=\"background-color: rgba(0, 0, 0, 0);\">nodal account<\/mark><\/strong><\/a>?<\/p>\n<p><!-- \/wp:paragraph --><\/p>\n<p><!-- wp:image --><\/p>\n<p><!-- \/wp:image --><\/p>\n<p><!-- wp:paragraph --><\/p>\n<p>Before we move on to concrete differences between the two, let\u2019s have a look at the definition of a nodal account.<\/p>\n<p><!-- \/wp:paragraph --><\/p>\n<p><!-- wp:paragraph --><\/p>\n<p>A nodal account is a very specific type of bank account mandated by RBI. Businesses that act as an intermediary between buyers and sellers use nodal accounts in India.<\/p>\n<p><!-- \/wp:paragraph --><\/p>\n<p><!-- wp:paragraph --><\/p>\n<p>They aid in building trust between buyers, sellers and the payment system.\u00a0<\/p>\n<p><!-- \/wp:paragraph --><\/p>\n<p><!-- wp:paragraph --><\/p>\n<p>Essentially, a business or <a href=\"https:\/\/cashfree.com\/blog\/payment-aggregator\/?utm_source=blog&amp;utm_medium=organic&amp;utm_campaign=escrow_account_in_india_blog\" target=\"_blank\" rel=\"noreferrer noopener\"><strong><mark style=\"background-color: rgba(0, 0, 0, 0);\">payment aggregator<\/mark><\/strong><\/a> may use a nodal account to:<\/p>\n<p><!-- \/wp:paragraph --><\/p>\n<p><!-- wp:list --><\/p>\n<ul>\n<li style=\"list-style-type: none;\">\n<ul><!-- wp:list-item --><\/ul>\n<\/li>\n<\/ul>\n<ul>\n<li style=\"list-style-type: none;\">\n<ul>\n<li>Collect money on behalf of vendors<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p><!-- \/wp:list-item --><\/p>\n<p><!-- wp:list-item --><\/p>\n<ul>\n<li style=\"list-style-type: none;\">\n<ul>\n<li>Source products without manufacturing them\u00a0<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p><!-- \/wp:list-item --><\/p>\n<p><!-- \/wp:list --><\/p>\n<p><!-- wp:image {\"id\":4890,\"sizeSlug\":\"large\",\"linkDestination\":\"custom\"} --><\/p>\n<p><!-- \/wp:image --><\/p>\n<p><!-- wp:paragraph --><\/p>\n<p>Essentially, the business has no role in creating or maintaining inventory.<\/p>\n<p><!-- \/wp:paragraph --><\/p>\n<p><!-- wp:paragraph --><\/p>\n<p>Now, let\u2019s move on to the differences between an escrow account in India and a nodal account.\u00a0<\/p>\n<p><!-- \/wp:paragraph --><\/p>\n<p><!-- wp:heading {\"level\":3,\"otterConditions\":[]} --><\/p>\n<h3>Who Uses These Accounts?<\/h3>\n<p><!-- \/wp:heading --><\/p>\n<p><!-- wp:paragraph --><\/p>\n<p>Virtually anyone can use an escrow account in India. As we saw in the preceding examples, banks, corporations, or real estate owners can use it for their purposes. Essentially, buyers and sellers transferring a sizeable asset have to use these accounts.\u00a0<\/p>\n<p><!-- \/wp:paragraph --><\/p>\n<p><!-- wp:paragraph --><\/p>\n<p>On the other hand, only intermediaries use nodal accounts in India. Basically, these are businesses that connect the buyer and seller. For example, a payment system helps a merchant accept payments.\u00a0<\/p>\n<p><!-- \/wp:paragraph --><\/p>\n<p><!-- wp:paragraph --><\/p>\n<p>Online marketplaces (like Amazon), PPI (pre-paid instrument) and <a href=\"https:\/\/www.cashfree.com\/?utm_source=blog&amp;utm_medium=organic&amp;utm_campaign=escrow_account_in_india_blog\" target=\"_blank\" rel=\"noreferrer noopener\"><strong><mark style=\"background-color: rgba(0, 0, 0, 0);\">payment aggregators<\/mark><\/strong><\/a> (PAs) use a nodal account for their respective use cases.<\/p>\n<p><!-- \/wp:paragraph --><\/p>\n<p><!-- wp:paragraph --><\/p>\n<p>Some features of a nodal account are:<\/p>\n<p><!-- \/wp:paragraph --><\/p>\n<p><!-- wp:list --><\/p>\n<ul>\n<li style=\"list-style-type: none;\">\n<ul><!-- wp:list-item --><\/ul>\n<\/li>\n<\/ul>\n<ul>\n<li style=\"list-style-type: none;\">\n<ul>\n<li>Strict adherence to RBI norms for marketplaces<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p><!-- \/wp:list-item --><\/p>\n<p><!-- wp:list-item --><\/p>\n<ul>\n<li style=\"list-style-type: none;\">\n<ul>\n<li>Protecting customer and merchant interest<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p><!-- \/wp:list-item --><\/p>\n<p><!-- wp:list-item --><\/p>\n<ul>\n<li style=\"list-style-type: none;\">\n<ul>\n<li>Safe collection of payment for merchants by customers<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p><!-- \/wp:list-item --><\/p>\n<p><!-- wp:list-item --><\/p>\n<ul>\n<li style=\"list-style-type: none;\">\n<ul>\n<li>Settlements within the defined timeline<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<p><!-- \/wp:list-item --><\/p>\n<p><!-- \/wp:list --><\/p>\n<p><!-- wp:heading {\"level\":3,\"otterConditions\":[]} --><\/p>\n<h3>Do Buyer And Seller Know Each Other?<\/h3>\n<p><!-- \/wp:heading --><\/p>\n<p><!-- wp:paragraph --><\/p>\n<p>More often than not, the two parties may not know each other in an escrow account deal. Instead, the escrow agent facilitates the transaction.<\/p>\n<p><!-- \/wp:paragraph --><\/p>\n<p><!-- wp:paragraph --><\/p>\n<p>However, in the case of a nodal account, payments are transferred to the account maintained by the payment aggregator.<\/p>\n<p><!-- \/wp:paragraph --><\/p>\n<p><!-- wp:paragraph --><\/p>\n<p>Thereafter, it disburses the payment to the correct recipient on settlement.\u00a0<\/p>\n<p><!-- \/wp:paragraph --><\/p>\n<p><!-- wp:heading {\"level\":3,\"otterConditions\":[]} --><\/p>\n<h3>What Is The Purpose Of The Account?<\/h3>\n<p><!-- \/wp:heading --><\/p>\n<p><!-- wp:paragraph --><\/p>\n<p>In an escrow account in India, the buyer makes the payment. However, the buyer keeps the payment on hold until all the conditions of the pre-decided agreement are fulfilled. Thereafter, they transfer the funds to the seller.\u00a0<\/p>\n<p><!-- \/wp:paragraph --><\/p>\n<p><!-- wp:paragraph --><\/p>\n<p>In the case of a nodal account, the payment aggregator collects the payment on behalf of the merchant. Then, they keep the funds on hold until the time of the settlement. This ensures that this intermediary does not have access to the funds.\u00a0<\/p>\n<p><!-- \/wp:paragraph --><\/p>\n<p><!-- wp:paragraph --><\/p>\n<p>Hence, this ensures the safety of payment.<\/p>\n<p><!-- \/wp:paragraph --><\/p>\n<p><!-- wp:heading {\"otterConditions\":[]} --><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Advantages_Of_Having_An_Escrow_Account\"><\/span>Advantages Of Having An Escrow Account<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><!-- \/wp:heading --><\/p>\n<p><!-- wp:image --><\/p>\n<h3>Security\u00a0<\/h3>\n<p><!-- \/wp:heading --><\/p>\n<p><!-- wp:paragraph --><\/p>\n<p>The buyer and seller will have protection for both their funds and the goods as the funds are neutral with the third party agent.<\/p>\n<p><!-- \/wp:paragraph --><\/p>\n<p><!-- wp:heading {\"level\":3,\"otterConditions\":[]} --><\/p>\n<h3>Automation<\/h3>\n<p><!-- \/wp:heading --><\/p>\n<p><!-- wp:paragraph --><\/p>\n<p>These accounts are fully automated. This means that the funds are automatically transferred to the seller once all the clauses in the agreement have been fulfilled.\u00a0<\/p>\n<p><!-- \/wp:paragraph --><\/p>\n<p><!-- wp:heading {\"level\":3,\"otterConditions\":[]} --><\/p>\n<h3>Being Compliant with RBI Guidelines<\/h3>\n<p><!-- \/wp:heading --><\/p>\n<p><!-- wp:paragraph --><\/p>\n<p>As mentioned above, co-lending players require an escrow account to stay compliant with the latest <a href=\"https:\/\/www.cashfree.com\/blog\/digital-lending-guidelines\/\" target=\"_blank\" rel=\"noreferrer noopener\"><strong><mark style=\"background-color: rgba(0, 0, 0, 0);\">RBI guidelines on digital lending<\/mark><\/strong><\/a>.<\/p>\n<p><!-- \/wp:paragraph --><\/p>\n<p><!-- wp:image {\"id\":13344,\"sizeSlug\":\"large\",\"linkDestination\":\"custom\"} --><\/p>\n<figure><a href=\"https:\/\/www.cashfree.com\/nbfc-digital-lending-solutions\/?utm_source=blog&amp;utm_medium=organic&amp;utm_campaign=escrow_account_in_india_blog\" target=\"_blank\" rel=\"noreferrer noopener\"><img decoding=\"async\" data-recalc-dims=\"1\" height=\"86\" width=\"770\" src=\"https:\/\/i0.wp.com\/blogrevamp.cashfree.com\/wp-content\/uploads\/2022\/11\/cta-rbi-compliant-1.png?resize=770%2C86&#038;ssl=1\" alt=\"Escrow Account\" \/><\/a><\/figure>\n<p><!-- \/wp:image --><\/p>\n<p><!-- wp:heading {\"level\":3,\"otterConditions\":[]} --><\/p>\n<h3>Facilitates Agreement<\/h3>\n<p><!-- \/wp:heading --><\/p>\n<p><!-- wp:paragraph --><\/p>\n<p>The escrow agent acts as the middle person during the agreement process between the two parties and ensures that both parties come to an agreement.\u00a0<\/p>\n<p><!-- \/wp:paragraph --><\/p>\n<p><!-- wp:heading {\"level\":3,\"otterConditions\":[]} --><\/p>\n<h3>Simple And Efficient<\/h3>\n<p><!-- \/wp:heading --><\/p>\n<p><!-- wp:paragraph --><\/p>\n<p>Opening this account is a very simple and quick step. An escrow agent helps both parties to have an efficient and smooth transaction during the tenure.<\/p>\n<p><!-- \/wp:paragraph --><\/p>\n<p><!-- wp:heading {\"level\":3,\"otterConditions\":[]} --><\/p>\n<h3>Confidentiality<\/h3>\n<p><!-- \/wp:heading --><\/p>\n<p><!-- wp:paragraph --><\/p>\n<p>The details of the escrow account holder\u2019s names are maintained confidential and are not public.<\/p>\n<p><!-- \/wp:paragraph --><\/p>\n<p><!-- wp:paragraph --><\/p>\n<p>However, parties can use these accounts depending upon both of their individual interests. Some multinational companies and government agencies do make it a strict rule to have an <a href=\"https:\/\/merchant.cashfree.com\/merchants\/signup?utm_source=blog&amp;utm_medium=organic&amp;utm_campaign=escrow_account_in_india_blog\" target=\"_blank\" rel=\"noreferrer noopener\"><strong><mark style=\"background-color: rgba(0, 0, 0, 0);\">escrow account<\/mark><\/strong><\/a>, while others have the freedom to avail of the services as per their liking.<\/p>\n<p><!-- \/wp:paragraph --><\/p>\n<p><!-- wp:heading {\"otterConditions\":[]} --><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Guidelines_Set_by_Authorities_around_Escrow_Accounts_in_India\"><\/span><b>Guidelines Set by Authorities around Escrow Accounts in India<\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<h3><b>1. Reserve Bank of India (RBI) \u2013 Banking and Payments Regulator<\/b><\/h3>\n<p><span style=\"font-weight: 400;\">The Reserve Bank of India (RBI) is India\u2019s central bank and one of the primary regulators of escrow accounts, especially when escrow is used for payments, foreign investments, or digital money flows.<\/span><\/p>\n<h4><b>Key Rules by RBI<\/b><\/h4>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Allowed Purpose:<\/b><span style=\"font-weight: 400;\"> Escrow accounts must be used only for legitimate, specified transactions \u2014 for example, holding customer funds collected through payment platforms or holding funds for foreign investment deals.<\/span><span style=\"font-weight: 400;\"><br \/><\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Where They Can Be Opened:<\/b><span style=\"font-weight: 400;\"> Escrow accounts must be opened with a Scheduled Commercial Bank (SCB) in India.<\/span><span style=\"font-weight: 400;\"><br \/><\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Segregation of Funds:<\/b><span style=\"font-weight: 400;\"> Money collected on behalf of customers (such as on payment aggregator platforms) must be maintained separately in an escrow account and not mixed with the business\u2019s own funds.<\/span><span style=\"font-weight: 400;\"><br \/><\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Permissible Transactions:<\/b><span style=\"font-weight: 400;\"> RBI specifies in the escrow account guidelines about what can be credited and debited. For example, customer payments can be credited, and payouts to merchants or refunds can be debited, following a clear schedule and adjustments set between the buyer and seller.<\/span><span style=\"font-weight: 400;\"><br \/><\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Escrow in Foreign Investments:<\/b><span style=\"font-weight: 400;\"> Under the Foreign Exchange Management (Deposit) Regulations, escrow accounts used for cross-border share acquisitions must follow strict conditions, for example, funds can be credited only by permitted remittances, and the account is usually non-interest-bearing and must close after the purpose is fulfilled.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Escrow Duration Limits:<\/b><span style=\"font-weight: 400;\"> For certain foreign direct investment (FDI) deals, RBI rules state that the escrow account typically can only remain open for 6 months unless specific permission is given.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>KYC Compliance: <\/b><span style=\"font-weight: 400;\">As per the rules of RBI, it states that the<\/span> <span style=\"font-weight: 400;\">Know-Your-Customer (KYC) checks are mandatory for banks and the escrow agents along with the buyer and sellers. \u00a0 Without these, no one is authorized to open or operate the escrow account<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">In essence, RBI\u2019s guidelines are designed to ensure that escrow accounts are safe, transparent, and used exactly for the purposes permitted by law.<\/span><\/p>\n<h3><b>2. Securities and Exchange Board of India (SEBI) \u2013 Capital Markets Regulator<\/b><\/h3>\n<p><span style=\"font-weight: 400;\">When escrow accounts are used in capital market transactions \u2014 such as open offers, takeovers, mergers and acquisitions, initial public offerings (IPOs), or share transfers \u2014 SEBI regulates them.<\/span><\/p>\n<h4><b>SEBI\u2019s Escrow Rules<\/b><\/h4>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Mandatory Deposit for Offers:<\/b><span style=\"font-weight: 400;\"> In a takeover or public offer, the acquiring company must deposit a certain percentage of the offer value into a SEBI-specified escrow account before making the offer public.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Form of Escrow:<\/b><span style=\"font-weight: 400;\"> The escrow can be in the form of cash, bank guarantees, or approved securities, as permitted under SEBI regulations.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Empowering Merchant Banker:<\/b><span style=\"font-weight: 400;\"> SEBI requires the financial intermediary managing the offer to instruct the bank to make payments, issue demand drafts, or process withdrawals.<\/span><a href=\"https:\/\/www.sebi.gov.in\/cms\/sebi_data\/attachdocs\/1367922725672.pdf?utm_source=chatgpt.com\"><span style=\"font-weight: 400;\">\u00a0<\/span><\/a><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Validity and Security: <\/b><span style=\"font-weight: 400;\">As per the SEBI guidelines, the bank guarantees must remain valid throughout the terms and conditions period and even after the offer completion for a specific time frame.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Increase in Escrow for Revised Offers:<\/b><span style=\"font-weight: 400;\"> If an offer price is increased, SEBI mandates increasing the escrow amount accordingly.<\/span><a href=\"https:\/\/www.sebi.gov.in\/acts\/tkreg.html?utm_source=chatgpt.com\"><span style=\"font-weight: 400;\">\u00a0<\/span><\/a><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Forfeiture:<\/b><span style=\"font-weight: 400;\"> If the buyer fails to fulfil its contractual responsibilities, SEBI may forfeit the escrow amount.<\/span><a href=\"https:\/\/www.sebi.gov.in\/acts\/tkreg.html?utm_source=chatgpt.com\"><span style=\"font-weight: 400;\">\u00a0<\/span><\/a><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">Every rule established by SEBI guarantees the safety of investors and owners as well as the safekeeping of funds prior to the fulfillment of obligations in significant securities transactions.<\/span><\/p>\n<h3><b>3. Real Estate (Regulation and Development) Act \u2013 RERA<\/b><\/h3>\n<p><span style=\"font-weight: 400;\">The rules under the Real Estate (Regulation and Development) Act, 2016 (RERA), are designed to safeguard buyers and sellers and ensure the final deal is secure through a legal escrow agent.\u00a0<\/span><\/p>\n<h4><b>RERA Escrow Account Rules<\/b><\/h4>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Deposit of Buyer Funds:<\/b><span style=\"font-weight: 400;\"> To secure the buyer&#8217;s funds, the RERA Act requires the construction company to set aside 70% of the funds collected into the respective escrow account.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Purpose Limitation: <\/b><span style=\"font-weight: 400;\">The funds in the escrow account should only be used for the same purpose for which they are deposited. It means that if the buyer is submitting the funds for construction purposes, then it can only be used for the construction of that project.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Proportional Withdrawals:<\/b><span style=\"font-weight: 400;\"> Builders who received funds from the buyer may withdraw only in proportion. The withdrawal permission must be approved by professional engineers, building planners, and chartered accountants.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Audit and Transparency:<\/b><span style=\"font-weight: 400;\"> The escrow account must be audited every financial year, and audit reports are submitted to the regulatory authority, ensuring proper use of funds.<\/span><span style=\"font-weight: 400;\"><br \/><\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Warnings:<\/b><span style=\"font-weight: 400;\"> Serious consequences, such as fines and possibly jail time, may be imposed on builders who misuse the buyer funds or disregard RERA escrow regulations.<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">The purpose of RERA&#8217;s escrow regulations is to safeguard homebuyers&#8217; funds and ensure that projects are completed before funds are disbursed to developers.<\/span><\/p>\n<h3><b>4. Other Authorities and Related Rules<\/b><\/h3>\n<h4><b>Company Law \/ Contract Law<\/b><\/h4>\n<p><span style=\"font-weight: 400;\">While not primary regulators like RBI or SEBI, general contract law (Indian Contract Act) and company law provisions often govern how escrow agreements are drafted and enforced in private commercial contracts, especially in:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">M&amp;A deals<\/span><span style=\"font-weight: 400;\"><br \/><\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Business service agreements<\/span><span style=\"font-weight: 400;\"><br \/><\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Technology contracts<\/span><span style=\"font-weight: 400;\"><br \/><\/span><\/li>\n<\/ul>\n<h4><b>State RERA Bodies<\/b><\/h4>\n<p><span style=\"font-weight: 400;\">State Real Estate Regulatory Authorities (like TNRERA, UPRERA) also implement RERA escrow provisions and sometimes issue additional directions. For example:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Some states may require additional deposits for project extensions to ensure funds are in escrow to protect buyer interests.<\/span><span style=\"font-weight: 400;\"><br \/><\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">States may monitor promoter compliance and allow buyers to report misuse of escrow funds in case of fraud or misappropriation detection.<\/span><\/li>\n<\/ul>\n<p><!-- \/wp:paragraph --><\/p>\n<p><!-- wp:heading {\"otterConditions\":[]} --><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Wrap_Up\"><\/span>Wrap Up:<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><!-- \/wp:heading --><\/p>\n<p><!-- wp:paragraph --><\/p>\n<p><span style=\"font-weight: 400;\">With the advancement in technology, features such as escrow accounts are becoming more and more relevant, by the day. Escrow accounts are being used everywhere, right from real estate to Cryptocurrency trading.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">With the growing demand for escrow services, service providers are also increasing by the day. In such a scenario, it is imperative to do thorough research before availing of the services as frauds around <\/span>escrow accounts<span style=\"font-weight: 400;\"> are also rising.<\/span><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Frequently_Asked_Questions_On_Escrow_Accounts_in_India\"><\/span><b>Frequently Asked Questions On Escrow Accounts in India<\/b><b><\/b><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<h3><b>What basic documents are required for opening an escrow account?<\/b><\/h3>\n<p><span style=\"font-weight: 400;\">In order to open an escrow account, the basic documents needed are valid ID proofs of both parties, the buyer and seller, a signed copy of the escrow agreement, a signed copy of the application form submitted, the source of finances, and all KYC documents, along with valid PAN cards and AADHAR cards as ID proof of both parties.\u00a0<\/span><\/p>\n<h3><b>Who all needs to open an escrow account?<\/b><\/h3>\n<p><span style=\"font-weight: 400;\">An escrow account is primarily used by individuals planning high-value transactions or high-value purchases, like a property or an investment in big projects. Companies that use escrow accounts are in the real estate industry, mergers and acquisitions, insurance companies, and people investing in e-commerce marketplaces.\u00a0<\/span><b><\/b><\/p>\n<h3><b>Is my money safe in an escrow account?<\/b><\/h3>\n<p><span style=\"font-weight: 400;\">Yes, an escrow account is created for the sole purpose of keeping your funds secure. The funds are only released when the agreed conditions between the two parties are met. The escrow agent&#8217;s guidelines are strict, and to ensure a successful fund transfer, the parties must fulfil all conditions.\u00a0 Strict rules reduce the risk of fraud and unauthorised access to the funds.\u00a0<\/span><b><\/b><\/p>\n<h3><b>Is an escrow account legal in India?<\/b><\/h3>\n<p><span style=\"font-weight: 400;\">In India, escrow accounts are legal. Escrow accounts are maintained by a third party (an escrow agent) until the fund requirements are fulfilled and are recognised under Indian law, including the Indian Contract Act and RBI\/SEBI guidelines. They are frequently used in e-commerce, M&amp;A, and real estate (RERA), where the guidelines provide security and compliance for both buyers and sellers.\u00a0\u00a0<\/span><\/p>\n<h3><b>Is there interest in an escrow account in India?<\/b><\/h3>\n<p><span style=\"font-weight: 400;\">According to RBI guidelines, escrow accounts in India are non-interest bearing.<\/span><\/p>\n<h3><b>Is an escrow account frozen if a party does not hold their end of the deal?<\/b><\/h3>\n<p><span style=\"font-weight: 400;\">No, the funds in an escrow account in India are never frozen.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Moreover, if the seller is delaying the delivery of the asset, the buyer can call off the deal. They have to instruct the escrow account agent and withdraw the funds from the account<\/span><\/p>\n<p><span style=\"font-weight: 400;\">More importantly, an escrow account in India is only created for <\/span><b>6 months<\/b><span style=\"font-weight: 400;\"> at first. If the buyer or seller wants to increase that duration, they need special permission from the RBI.<\/span><\/p>\n<h3><b>Can the escrow agent siphon off the funds in the account?<\/b><\/h3>\n<p><span style=\"font-weight: 400;\">No, the escrow agent cannot use the escrow funds for personal purposes.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">According to RBI Guidelines, the agent can only transfer the funds to the seller after the buyer agrees. The buyer has to approve any action affecting the funds.\u00a0<\/span><\/p>\n<h3><b>Can the escrow agent have a bias towards the buyer and seller?<\/b><\/h3>\n<p><span style=\"font-weight: 400;\">The escrow agent is a third-party player that does not have loyalties towards the buyer or the seller.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Moreover, they work under a regulatory framework by RBI. Hence, they cannot afford to take any mal-intentioned steps with regard to the escrow funds<\/span><\/p>\n<p><strong>Related Post<\/strong><\/p>\n<p><!-- \/wp:paragraph --><\/p>\n<ul>\n<li><a href=\"https:\/\/www.cashfree.com\/blog\/upi-transaction-limit\/\">UPI Transaction Limit<\/a><\/li>\n<li><a href=\"https:\/\/www.cashfree.com\/blog\/phonepe-transaction-limit-per-day\/\">Phonepay Transaction Limit<\/a><\/li>\n<li><a href=\"https:\/\/www.cashfree.com\/blog\/google-pay-transaction-limit\/\">Google Pay Transaction<\/a><\/li>\n<li><a href=\"https:\/\/www.cashfree.com\/blog\/fintech-companies-in-india\/\">Fintech Companies in India<\/a><\/li>\n<li><a href=\"https:\/\/www.cashfree.com\/blog\/upi-integration\/\">UPI Integration<\/a><\/li>\n<\/ul>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t<\/div>\n\t\t","protected":false},"excerpt":{"rendered":"<p>What is an Escrow Account? Meaning &amp; Definition An escrow account is a temporary secure account where a third party (usually an escrow agent) holds funds or assets on behalf of two parties. Under RBI and Indian contract law, these accounts protect both buyers and sellers by releasing funds only when agreed conditions are fulfilled.<\/p>\n","protected":false},"author":142,"featured_media":7132,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_exactmetrics_skip_tracking":false,"_exactmetrics_sitenote_active":false,"_exactmetrics_sitenote_note":"","_exactmetrics_sitenote_category":0,"_themeisle_gutenberg_block_has_review":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_wpcom_ai_launchpad_first_post":false,"_jetpack_feature_clip_id":0,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_post_was_ever_published":false},"categories":[1383],"tags":[1518,5520,5539,1379,1381,3571],"class_list":["post-4867","post","type-post","status-publish","format-standard","has-post-thumbnail","category-payments","tag-escrow-account","tag-escrow-account-in-india","tag-nodal-account-vs-escrow-account","tag-online-payment-gateway","tag-payment-solution","tag-rbi"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v28.3 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>What is an Escrow Account in India, How it Works &amp; When to Use<\/title>\n<meta name=\"description\" content=\"Learn what is an escrow accounts: Its meaning, how it work, why you need it, &amp; steps to open account in India. 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