Earnest Money

Tax Glossary Definition

Earnest Money

Earnest money is a good-faith deposit paid by a buyer at the time of entering into a property or real estate agreement.It serves as a token of commitment that the buyer intends to complete the purchase as agreed in the contract.

This payment assures the seller of the buyer’s seriousness and reduces the risk of the buyer backing out without valid cause

Example

A buyer interested in purchasing a house worth ₹50,00,000 deposits ₹2,00,000 as earnest money while signing the agreement.
This amount:

  • Shows seriousness in buying

  • Gets adjusted in the final payment at closing

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