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Tata Capital > Blog > Loan for Home > What Is TDS & How Does It Work For Home Loan?

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What Is TDS & How Does It Work For Home Loan?

What Is TDS & How Does It Work For Home Loan?

Buying a home of your own is a source of great pride and accomplishment in India and worldwide. But with soaring real estate prices, very few people can purchase property without taking any financial loan. Buying property often requires much thought, research, and planning. Furthermore, getting a home loan for a property can be a complex and confusing process. Buyers then get even more confused with the concept of TDS thrown into the mix. 

So here is a guide on TDS – its full form, TDS rates, how it works for home loans, and more.

What is TDS – TDS Meaning and TDS Full Form?

Most people know that the TDS full form is Tax Deducted at Source. It is a direct tax deducted from an amount at the time of payment. The TDS full form is self-explanatory; it indicates that TDS means the tax collected from the income source.  

The concept of TDS is that a person who has to make a payment to another will have to get the tax deducted from the source amount and pay the same to the Central Government. TDS accounting is essential as the government uses it to minimize tax evasion by taxing the income as soon as it is generated rather than taxing it later. 

When is TDS Deduction Applicable?

The TDS meaning is well-known because it is applied to different types of payments. This payment includes TDS on professional fees, rent, salary, commissions earned, bank payment interest, lottery winnings, and more. Due to this exposure in various avenues, people understand the TDS meaning and concept. 

Under the Income Tax Act, TDS on purchase of house property deducted at source for various categories of transactions is covered under different sections. So, for example, Section 192A deals with TDS on salary payment, Section 194D deals with TDS on insurance commission, and Section 194J deals with TDS on professional fees.

What are TDS Rates?

There are different interest rates for the various categories of transactions and recipients.

Here is a table illustrating TDS rates under different transaction categories for resident Indians.

Section under Income Tax ActTransaction categoryTDS rate for resident Indian individuals or Hindu Undivided Families (HUFs)
Section 192TDS on Salary paymentAccording to the tax slab rate
Section 194BTDS on lottery and game winnings (amount should exceed Rs 10000)30%
Section 194EETDS on payment toward National Savings Scheme (NSS) deposits (aggregate amount in a financial year (FY) should exceed Rs 2500)10%
Section 194FTDS on payment toward repurchase of mutual fund units20%
Section 194DTDS on insurance commission5%
Section 194HTDS on brokerage or commission5%
Section 194ITDS on rentPlant and machinery – 2% Land, building, furniture, fixtures – 10%
Section 194JTDS on professional feesTechnical services – 2% Royalties on cinematographic films – 2% Others – 10%
Section 194LATDS on the acquisition of immovable property (amount should exceed Rs 50 lakh)1%
Section 194STDS on the payment for the transfer of a Virtual Digital Asset1%

Regarding TDS accounting, it is essential to note that not every person or income will be charged TDS. TDS on purchase of house property is not applicable when the payment for NSS deposits does not exceed Rs 2500 per financial year. TDS will be deducted only when the deposits toward the NSS exceed Rs 2500 per FY.

How to Know the Deducted TDS Amount?

Sometimes a person does not know the TDS deducted at source amount for the financial year. In this case, the TDS amount can be found by accessing Form 26AS, a tax credit statement that provides a detailed TDS report during the financial year. 

Here are the steps to access Form 26AS:

  1. Visit the official website of the Income Tax Department of India and register as a new user
  2. Enter the required information, such as PAN details, and generate the password
  3. Once registration is complete, log in using the registered ID and password
  4. Choose the option to view Form 26AS or the tax credit statement
  5. The page will be redirected to a new page for the TDS Reconciliation Analysis and Correction Enabling System, which provides details of a taxpayer’s tax liabilities, including the TDS information.

How Does TDS Work for Home Loans?

Under Section 194LA of Income Tax Act, a person responsible for paying a Resident Indian for the acquisition of immovable property (except agricultural) must get deducted 1% to be paid as TDS to the government. 

Section 194LA of Income Tax Act indicates that the buyer has to pay the TDS. However, in the case of home loans, the buyer is not paying the seller directly but has the lender paying the seller on their behalf. 

So, to know how does TDS work, the buyer should ask the lender to deduct the TDS on their behalf by submitting an application requesting the same. The buyer must provide the lender with relevant computations for TDS in their application. The buyer should inform the seller of the property that TDS will be deducted from the loan amount as per the law. Details of the TDS deducted from source should be provided in the Deed/Agreement to avoid future conflict or confusion and provide clarity on how does TDS work. 

The lender deducts the TDS on purchase of house property and pays the remaining amount to the seller.

TDS on Purchase of House Property

TDS on property purchase applies when a residential property is bought for ₹50 lakh or more. Under TDS Section 194IA, the buyer must deduct 1% TDS on the total sale value before making payment to the seller. This rule applies to residential houses and apartments and does not cover agricultural land.

The responsibility of deducting and depositing TDS on house buying lies entirely with the buyer, not the seller. TDS must be deducted at the time of payment, even if the purchase amount is paid in instalments.

Once deducted, the buyer must deposit the TDS using Challan 26QB on the TIN-NSDL portal within 30 days from the end of the month in which the payment is made. After payment, Form 16B must be downloaded and issued to the seller as proof of TDS deduction.

It is important to verify the seller’s PAN before making the payment. If PAN details are incorrect or unavailable, TDS may be deducted at a higher rate of 20%. Delays in deduction or payment can attract interest at 1% to 1.5% per month, along with penalties.

Understanding TDS on Interest on Loan

TDS on loan interest is governed by Section 194A of the Income Tax Act, which applies to interest payments other than on securities. The standard TDS rate under this section is 10% when the PAN of the recipient is furnished; if PAN is not provided, the rate increases to 20%. 

Now let’s take a look at loan interest TDS rules. For home loans taken from banks or recognised financial institutions, borrowers are not required to deduct TDS on the interest they pay, because these lenders are exempt from TDS deduction liabilities under normal home loan interest payouts. 

TDS provisions kick in only if you are making interest payments to other parties (e.g., non-banks or unsecured loans) and the total interest paid in a financial year exceeds specified thresholds (commonly ₹40,000 for banks/post offices and ₹5,000 in other cases). 

Interest earned from savings accounts is not subject to TDS on loan interest, and borrowers can file Form 15G/15H to avoid unnecessary deductions if their total income is below the taxable limit. 

How to Deposit and File TDS for Home Loans

If you are wondering how to file TDS 194IA, here are some simple steps to deposit and file TDS on home loan for purchasing a property: 

  • To deposit TDS online, use Challan 26QB on the TIN-NSDL portal. Enter buyer/seller PAN, property details, and 1% TDS amount. The buyer must pay via net banking or debit card within 30 days of the month.
  • Once the TDS payment process is completed, the buyer receives a generated acknowledgement. The buyer has to then file TDS for property by registering on TRACES and downloading Form 16B – a proof to be issued to the seller.

Common Penalties and Compliance Tips for TDS on Property

Late deposits trigger TDS late fee rules and penalties such as:

  • TDS penalty for late payment applies if the deducted amount is not deposited on time. Interest is charged at 1% per month for non-deduction and 1.5% per month for delay after deduction.
  • As per TDS late fee rules, a late filing fee of ₹200 per day may apply for delays in filing Form 26QB, subject to the TDS amount.
  • A property TDS penalty under Section 271H can range from ₹10,000 to ₹1,00,000 for late or incorrect filing, in addition to interest.

Compliance Tips

  • Follow TDS compliance tips by verifying the seller’s PAN to avoid deduction at a higher 20% rate.
  • Deduct TDS at the time of payment, including instalments, and deposit it within 30 days from the end of the month using Challan 26QB.
  • Download and issue Form 16B to the seller promptly after depositing TDS.
  • Review filings regularly and correct errors through the TRACES portal to prevent penalties and disputes.

Conclusion

TDS accounting is essential and should not be undermined. Failure to pay TDS on interest on loan for an immovable property can result in a penalty of up to Rs 1 lakh under Section 271H. The responsibility for the deduction and deposit of TDS on immovable property via home loan lies in the hands of the buyer. They should ensure that the lender deducts TDS on interest on loan, and a deposit of the same should be made to the government timely. The process for depositing TDS can be done online. If you are looking for a good home loan, you can contact the experts of Tata Capital to assist you with the same.

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FAQs

What are the rates of TDS applicable to property purchase and home loans?

The TDS rate is 1% on property sale value over ₹50 lakhs under Section 194-IA. There is no TDS applicable on home loan interest or on principal amount from lenders. 

Who is responsible for deducting TDS on home loans?

The property buyer is responsible for deducting TDS on home loan.

How do I file and deposit TDS for home loans?

Filing and depositing TDS on purchase of house property using a home loan is the buyer's responsibility if the property evaluation is ₹50 lakhs or more. You need to calculate 1% TDS on the total property value by using Form 26QB, and issue Form 16B to the seller.

What if I do not deduct TDS on time?

For late deductions you will be charged 1-1.5% monthly interest on TDS on home loan under Section 201(1A).

Can TDS be refunded if deducted in excess?

Yes, sellers can claim excess TDS on home loan refunds via their income tax return and buyers get credit in Form 26AS.

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