LeadOne AIby One Construction
Collections6 min readUpdated

Construction-linked payment plans explained, with a worked ₹ example, and how to send demand letters on time

How construction-linked payment plans work for Indian flats, a full ₹80 lakh worked schedule with GST and TDS, and a process to raise demand letters on time.

On this page
  1. How a construction-linked plan works
  2. A worked example
  3. Why demand letters go out late
  4. A process that works
  5. What a demand letter should contain
  6. Other common payment plans
  7. Sources

The construction-linked plan (CLP) is the most common payment plan for under-construction flats in India. The buyer pays a portion of the price as each construction stage is completed. Banks like it because they can disburse home loans against progress. Buyers like it because they pay as the building rises.

For a developer, a CLP only works if demands go out as soon as each stage is reached. This article explains how a CLP is structured, walks through a complete ₹ example, and sets out a process for raising demand letters on time.

01How a construction-linked plan works

A CLP splits the agreement value into instalments tied to milestones: booking, agreement, plinth, each slab, masonry, plaster, flooring, finishing and possession. When the project architect certifies that a milestone is complete, the developer raises a demand on every unit in that building.

The plan sits in the agreement for sale. Three rules shape it:

  • RERA Section 13. Before the agreement for sale is signed and registered, the developer cannot collect more than 10% of the cost. So the first instalment, at booking, is usually 10% or less.
  • State model agreements. Some states' RERA rules include a model agreement with a payment schedule or maximum cumulative percentages per stage. Check your state's form before designing a plan.
  • Bank practice. The RBI's Master Circular on Housing Finance tells banks that disbursals to individuals should be closely linked to construction stages. A plan that front-loads payments far ahead of progress will not be funded by lenders.

02A worked example

Take a 2 BHK with an agreement value of ₹80,00,000 in a 10-storey tower. GST is 5% because the flat is not in the affordable category. The buyer will deduct 1% TDS under Section 194-IA because the price is above ₹50 lakh.

Illustrative. TDS is shown on the amount excluding GST; see the TDS note below.
Stage% of valueAmount (₹)GST 5% (₹)Total demand (₹)TDS 1% on amount (₹)Buyer pays developer (₹)
Booking10%8,00,00040,0008,40,0008,0008,32,000
Plinth15%12,00,00060,00012,60,00012,00012,48,000
Each slab, 1st to 10th (4% each)40%32,00,0001,60,00033,60,00032,00033,28,000
Brickwork and internal plaster10%8,00,00040,0008,40,0008,0008,32,000
External plaster, plumbing, electricals10%8,00,00040,0008,40,0008,0008,32,000
Flooring, doors, windows, lifts10%8,00,00040,0008,40,0008,0008,32,000
Possession (on OC)5%4,00,00020,0004,20,0004,0004,16,000
Total100%80,00,0004,00,00084,00,00080,00083,20,000

Stamp duty and registration fee are paid by the buyer to the government at agreement and do not appear in this schedule. Possession-stage charges such as advance maintenance and corpus fund are usually billed separately.

NoteWhether TDS should be computed on the GST component is a question buyers often ask. CBDT Circular 23/2017 says tax need not be deducted on the GST component where it is shown separately in the agreement or invoice. Many practitioners apply it to Section 194-IA as well. Ask buyers to confirm with their own tax adviser, and make sure your ledger handles both approaches.

What the developer sees in the ledger

Each demand creates a receivable of the total demand amount. When the buyer pays, the ledger records two credits: the amount received and the TDS deposited through Form 26QB. The receivable is cleared only when both are matched. Unmatched TDS is one of the most common reasons buyer ledgers do not reconcile.

03Why demand letters go out late

The causes are usually the same:

  • The site team does not tell the CRM team the day a slab is cast and certified.
  • Demand letters are built one by one in Word or Excel, so 150 letters take days.
  • Unit data, payment received and GST rates sit in different sheets that must be cross-checked.
  • Letters for buyers with loans need a copy to the bank, which is a separate manual step.
  • Nobody owns the deadline, so a stage completed on the 3rd is billed on the 25th.

A two-week delay on one slab across 150 units of ₹80 lakh is a delay on ₹4.8 crore of collections (150 × ₹3,20,000). Across a year of slabs, the interest cost and the strain on construction funding add up.

04A process that works

  1. Milestone recorded. The site engineer records the milestone with a date and photos as soon as it is complete.
  2. Certification. The project architect issues the stage certificate. Most banks need it for disbursal.
  3. Demand run within 48 hours. The CRM team raises demands for every unit in that tower in one batch, from the same unit and payment data the ledger uses.
  4. Delivery. Letters go to buyers by email and WhatsApp, with a copy to each buyer's lender where the unit is financed.
  5. Reminders. Automatic reminders before and after the due date.
  6. Escalation. Overdue accounts move to a named collections owner after a set number of days, with interest applied as per the agreement.
Due dates are often 15 to 30 days from the demand date. Use the period in your agreement.
DayActionOwner
D0Stage complete, recorded with photosSite engineer
D0 to D2Architect's stage certificateProject architect
D2Demand letters raised for all units in the towerCRM executive
D2Copies to lenders with certificateCRM executive
Due date minus 3ReminderSystem
Due date plus 7Call and reminderCRM executive
Due date plus 30Escalation, interest notice per agreementCollections lead

LeadOne AI connects construction milestones with collections, so demand letters for all the units at a completed stage can be raised together.

05What a demand letter should contain

  • Project name, tower, unit number and RERA registration number
  • Buyer names as in the agreement
  • Stage completed and the date of completion or certification
  • Instalment percentage and amount, GST and total due
  • Amounts received to date and outstanding balance
  • Due date and the interest rate for late payment as in the agreement
  • The project's designated bank account under RERA, with IFSC, and a payment reference
  • A reminder about TDS under Section 194-IA for units of ₹50 lakh or more
  • Contact person for questions
Watch outPayments must go to the correct account. Under Section 4(2)(l)(D) of the RERA Act, 70% of amounts realised from buyers must be deposited in the project's separate account. A demand letter with the wrong account creates a compliance and reconciliation problem.

06Other common payment plans

PlanHow it worksWatch out for
Construction-linkedPay by stage of constructionDelays in raising demands
Down paymentPay most of the price early for a lower ratePrice the discount as a financing cost
Time-linkedPay on fixed dates regardless of progressBuyers and banks resist if progress lags
Subvention or interest supportDeveloper pays buyer's pre-EMI for a periodRBI guidance against upfront disbursal; budget the cost
Possession-linkedSmall payments during construction, large at possessionHeavy reliance on construction finance
What is a construction-linked plan in real estate?
A payment plan where the buyer pays instalments as construction stages are completed, such as plinth, each slab and finishing. It is the most common plan for under-construction flats in India.
Can a builder ask for payment before a stage is complete?
The agreement for sale governs when payments are due. A builder should raise a stage demand only after the stage is complete, usually with an architect's certificate. Banks will not disburse a home loan tranche without it.
How much can a builder collect before the agreement for sale?
Section 13 of the RERA Act caps it at 10% of the cost of the apartment until a written agreement for sale is executed and registered.
Is GST charged on each instalment?
Yes. GST at the applicable rate (1% or 5% for most residential units under the 2019 scheme) is charged on each instalment as it is billed.

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