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How to Deduct TDS on Home Loan in India

How to Deduct TDS on Home Loan in India

Whenever a buyer purchases a property from the seller, TDS needs to be deducted.

The law states that it is the buyer’s responsibility to deduct TDS. But in case of a home loan, the buyer does not pay the seller directly. Instead, the lender pays the seller on behalf of the buyer. That is why home loan TDS deduction is hard to follow.

The buyer can either deduct the TDS themselves or request a lending institution to do it on their behalf. Read below to learn more about both of these methods.

Consider the following example. X is purchasing a property from Y for Rs. 1 crore. X takes a loan for Rs. 40 lakhs from the lender Z. Since the lender is not responsible for deducting TDS on home loans, Z will pay Rs. 40 lakhs to Y directly, without deducting TDS. The remaining amount will be self-financed by X, and while paying this amount, X must deduct TDS @ 1%. See the calculations below for more clarity.

Consideration1,00,00,000
Less: Loan amount paid by Z(40,00,000)
Balance60,00,000
Less: TDS deducted by X (1% of 1,00,00,000)(1,00,000)
Net amount payable by X to Y59,00,000

* Note that for properties sold between 14.05.20 and 31.03.21, the rate of TDS applicable is 0.75%.

How can a buyer get the lender to deduct TDS on their behalf?

Step 1 – Write an application

Once the lender sanctions your loan, write an application requesting them to deduct TDS on your behalf, and submit it before the first disbursement. Furnish the details of the bank account where the lender must transfer the TDS amount after deducting it. You must also show all the relevant computations in the application. You can use an online home loan calculator for TDS and other calculations. Remember to collect an acknowledgement for the application.

Step 2 – Inform the seller

Inform the seller that TDS will be deducted from the loan amount. Ideally, you should mention details about the deduction of home loan TDS in the Sale Deed/Agreement itself, to prevent any confusion or disputes in the future.

Step 3 – Deduction and disbursement

The lender will deduct TDS @ 1% and disburse the remaining amount to the seller. The TDS deducted will be transferred to the specified bank account.

Step 4 – Deposit the TDS

Deposit the TDS within the applicable deadline. Share a copy of the TDS certificate with the seller and the lender.

Also, read – Closure Checklist for Home Loan

TDS on Home Loan Above Rs. 50 Lakhs: Rules and Compliance

You must deduct TDS on home loan if the property value exceeds ₹50 lakhs, even when the payment is partly funded by a lender. According to home loan TDS rules, TDS @ 1% must be calculated on the total property value and not just on the self-financed portion. The requirement to comply applies to all residential property purchases except agricultural land.

To maintain TDS compliance property, make sure that you report the deduction using Form 26QB, pay the TDS within 30 days from the end of the month of deduction, and share Form 16B with the seller. Even if the lender pays the seller directly, you are responsible for timely deduction and deposit.

Also, read – Know All The Nitty-Gritties Of NRI Home Loans

TDS Payment Process: How and When to Deposit TDS Online

Once TDS is deducted during the property transaction, the next step is to complete the TDS payment process without missing timelines. You can handle the entire filing and payment digitally through the Income Tax portal.

Steps to deposit TDS online:

1. Visit the portal and select Form 26QB for property-related TDS.

2. Enter buyer, seller, property value, and payment details.

3. Verify the pre-calculated TDS amount.

4. Deposit TDS online via net banking, debit card, or authorised bank payment gateway.

5. Download the acknowledgment and later generate Form 16B to provide to the seller.

Also, read – Pros and Cons of Making a Larger Down Payment on a Home Loan

What is Section 194IA and its Impact on TDS Deduction?

To regulate high-value property transactions, Section 194IA mandates TDS on residential properties priced at ₹50 lakhs or more. It applies whether the transaction is partly self-funded or financed by a home loan.

Impact of Section 194IA TDS on buyers:

– You must deduct TDS @ 1% before paying the seller.

– TDS deduction property obligations remain even if the lender pays the seller directly.

– A separate Form 26QB must be filed for every buyer-seller combination.

– For a 194IA home purchase, Form 16B must be issued to the seller after TDS payment for record-keeping.

Also, read – 10 Things To Know About Composite Loan

TDS on Property Purchase from Builder

You must deduct TDS even when purchasing directly from a builder, provided the property value exceeds ₹50 lakhs. This requirement applies to both under-construction and ready-to-move properties.

When paying instalments linked to construction stages, the deduction applies to each payment instead of a single final deduction. This ensures compliance with TDS on builder property throughout the purchase cycle.

Mentioning property purchase TDS in the Sale Agreement allows for transparency on adjustment amounts, possession timelines, and remaining instalments. This makes it easier to comply with home TDS rules and avoid disputes with the builder later.

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Joint Home Loans and TDS Deduction

TDS obligations do not change when more than one buyer purchases the property under a joint loan.

How it works for joint home loan TDS:

– TDS must be deducted by each buyer based on their ownership share and not on how much loan they repaid.

– Each buyer needs to file a separate Form 26QB and issue their own Form 16B.

Some considerations to keep in minds:

– Applies regardless of the share of funding

– Lender doesn’t handle TDS on co-borrower loan

– Proper record keeping prevents mismatches in tax statements for property TDS joint loan

Penalties for Non-Deduction or Late Payment of TDS on Property Purchase

Missing or delaying TDS deductions can lead to financial and compliance consequences. Here’s what happens if TDS is delayed or skipped:

– TDS penalty property may apply for failure to deduct or deposit.

– Interest accrues for every month of late TDS payment until cleared.

– A penalty equal to the deducted amount can be imposed in case of non-deduction TDS fine.

To avoid penalties, keep a record of deduction dates, Form 26QB payment acknowledgments, and Form 16B receipts for seller communication and tax filing.

Are you looking for attractive home loan interest rates? If yes, then Tata Capital is the right lender for you. Our loan application process is hassle-free and involves minimal documentation. To make it easier for you to pay the home loan EMI, we offer flexible repayment options.

We also have years of experience in the industry and offer dedicated after-sales support. Visit our website today to assess your home loan eligibility using our online home loan eligibility calculator.

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FAQs

What is the current TDS rate on home loan property purchases?

The current TDS rate on property purchases is 1% of the total property value when the price exceeds ₹50 lakhs. You must deduct this amount before transferring payment to the seller, even if part of the payment comes from a home loan.

 

How is TDS deducted when I take a joint home loan?

Each co-buyer must deduct TDS separately in proportion to their ownership share in the property. This means filing individual Form 26QB and issuing separate Form 16B to the seller to ensure proper compliance.

Can the lender deduct TDS on my behalf automatically?

The lender does not deduct TDS by default, as the responsibility lies with the buyer. However, you can request the lender in writing to deduct TDS during disbursement and transfer the deducted amount to the specified bank account.

What if my property purchase is above Rs 50 lakhs?

If the property value is above ₹50 lakhs, TDS deduction becomes mandatory at the rate of 1% on the full property value, not just the self-funded portion. This applies to both completed and under-construction properties.

How and when should I deposit TDS payment online?

You should deposit TDS online through Form 26QB on the Income Tax portal within 30 days from the end of the month in which the TDS was deducted. After payment, download Form 16B and provide it to the seller as proof of TDS compliance.

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