What Is an Escrow Account? How Business Escrow Works in India

How a business escrow works

• The parties sign an escrow agreement that sets out the conditions for releasing money.
• A bank acting as escrow agent opens the escrow account.
• The paying party deposits the funds into the escrow account.
• When a condition is met, for example delivery, a milestone or a document, the parties or an authorised person confirm it.
• The bank releases the agreed amount to the receiving party, as set out in the agreement.

Where escrow is used in India

• Marketplaces and platforms that collect money from buyers and pay sellers after delivery.
• Real estate projects, where builders must keep buyer money in a separate project account under RERA rules.
• Mergers, acquisitions and investments, where part of the price is held until conditions are satisfied.
• Large B2B contracts paid in milestones, such as construction, software or export orders.
• Government and infrastructure projects with staged payments.

Why businesses use escrow

Escrow builds trust between parties who do not know each other well. The buyer knows the money will only move when the work is done, and the seller knows the money exists and is set aside. It also creates a clear record of every deposit, approval and release, which helps with audits and disputes.

What makes escrow hard to manage

The difficult part is usually not opening the account but tracking it: which conditions are met, who has approved what, how much is still held, and what has been released. Escrow management software gives every party one view of the funds, the conditions, the approvals and the release status.

Frequently asked questions