One of the most common problems faced by a buyer is How to deduct TDS through Home Loan?. To deduct and deposit a TDS is the sole responsibility of a buyer. Sometimes a bank or HFC help the buyer and many a times they refuse. Currently, there is no standard process on how to deduct TDS through Home Loan. I come across unique and strange cases in this regard. Most of the times banks or HFC avoid hassle to deduct the TDS and put the entire onus on a buyer. The banks take advantage of a buyer if he or she is not aware of the rules and regulations in this regard. Therefore, it is critical for a buyer to understand the ground rules and regulations in this regard. In the case of a resident Indian seller, TDS is deducted u/s 194IA. On the other hand, in the case of an NRI seller TDS is deducted u/s 195. A buyer should deduct TDS on the total consideration value of the property, not on a sale deed value or capital gain on the property.
Here i would like to quote few practical examples to clarify certain doubts. In one of the case, a bank suggested my client that instead of deducting TDS through Home Loan she can deduct total TDS from her contribution. It is not a right way as the TDS is due only at the time of making payment. The major problem is in the case of TDS u/s 195 i.e. NRI seller. In one of the case, the bank told my client that he can pay TDS u/s 195 from his pocket. Once he deposits the TDS certificate, the bank will disburse the TDS amount from Home Loan amount. The justification shared was that TDS through Home Loan is equivalent to the refinancing of Home Loan. The TDS amount was 20 lac on consideration value of 1 Cr. My client had to run from pillar to post to arrange this additional amount. Ahh!! i feel like killing myself. The last one is the best one; Bank told my client that TDS through Home Loan is not applicable. In short, TDS should not be deducted and deposited for Home Loan amount & applicable only on buyers contribution. Wow !!! sometimes i wonder who has hired these employees. I don’t know whether they are doing it intentionally or under ignorance. In both the cases, the bank should take strict action against such employees as it put buyer under a lot of distress. Let’s check imp points and how to deduct TDS through Home Loan.
TDS through Home Loan – Imp Points to follow
(a) Clarify at the time of Home Loan Application
The best solution is to clarify how the bank will handle TDS through Home Loan. As i mentioned that there is no standard process but will share the widely followed process later in this post. This point is very vital in the case of NRI seller as the amount is enormous. You should discuss this point only with bank or HFC employee instead of DSA’s. A DSA may commit the moon, but his words/commitment will not have any value. After the discussion and finalizing the process of TDS through Home Loan, you should drop a mail to a bank employee. Mention the agreed upon process and request him/her to do the needful once the home loan application is approved.
(b) Joint Home Loans
Another major area of confusion. As i always suggest my clients to open the joint savings account before availing home loan. The TDS should be deducted and deposited in the proportion of ownership. There is a misconception that if one of the co-borrower/co-owner is non-earning then earning buyer/borrower can deduct and deposit TDS for full value. It is not right. Joint buyers can share their joint account with the bank or HFC in the case of a joint home loan. Once bank disburses the TDS amount in a joint bank account, each buyer can deposit the TDS in the proportion of ownership. In case joint bank account is not feasible, you may provide individual bank accounts to the bank and request them to disburse TDS amount individually in each account in the proportion of ownership.
(c) Advance TDS Deposit
If bank insists on depositing TDS in advance, you may request for written communication in this regard from the bank. A bank may ask you to deposit advance TDS before final disbursement or in the case of an NRI seller. Trust me bank will not request advance TDS in writing as the TDS is due only at the time of making payment. A buyer can deposit the TDS on or before 7th of next month in which the TDS is deducted. Even in the case of TDS through Home Loan, the buyer can deposit on or before deadline fixed u/s 194IA or u/s 195 i.e. 7th of next month.
TDS through Home Loan – Widely followed Process
As there is no standard process, i am sharing the most widely followed process to deduct TDS through Home Loan
(a) Submit Written Application
Once your home loan application is approved and before the first disbursement, you should submit a written application to the bank. In the request explicitly mention to deduct TDS through Home Loan on your behalf. Also, provide bank account details in which bank can disburse the TDS deducted in the name of a buyer. In the case of NRI seller, it is advisable to share calculations as the case may be. Last but not the least, take an acknowledgement from a Bank/HFC employee for this written request. Sometimes banks give an excuse that buyer has not submitted any request for TDS deduction.
(b) Inform the seller regarding TDS through Home Loan
As a next step inform the seller regarding TDS deduction from the home loan amount. It is advisable to document the TDS details in Sale Agreement/Sale deed to avoid any confusion/dispute in future.
(c) Disbursement from Bank
A bank will deduct the TDS from payment to the seller and deposit the same in borrowers bank account.
(d) Deposit the TDS
After receiving TDS disbursement from the bank, the buyer should deposit the TDS as per timelines and submit a copy of TDS certificate with a bank and a seller. While TDS filing, avoid the mistakes as i highlighted in my post, TDS Filing – 7 Common Mistakes.
Words of Wisdom: To deduct and deposit the TDS through Home Loan is the sole responsibility of a buyer. Any lapse or mistake from bank’s end is not an excuse for delay in deduction or deposit/filing. In few cases, if the Seller is builder then builder deposit the TDS on behalf of a buyer. I observed maximum mistakes or errors in such cases like wrong PAN or single challan in case of multiple buyers etc. I don’t prefer or suggest such practice. A buyer should deduct TDS through Home Loan and from own contribution & deposit the same. The entire process is very simple and online.
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Can we deduct the TDS from the 20% we pay on our own? If yes, then within what time of registration , we need to submit TDS ?
As i mentioned TDS is due at the time of making payment therefore you should deduct TDS from own contribution and pay on or before 7th of next month in which TDS is deducted. TDS should be deducted and deposited with each installment even for installments paid before registration.
Hi Nitin,
I had to pay TDS on behalf of seller since property was more than 50 lakhs, however due to personal emergency it did not happen. What is the process to make the payment now, does it attract penalty if yes could you please share the details. I was supposed to pay 1% of deed that is 59000.
I request you to go through my following post for complete details
https://www.nitinbhatia.in/real-estate/how-to-deduct-tds-on-property-sale-us-194ia/
Hi Syed,
Please make sure when you file the TDS, put the “payment transaction date to builder” as current date only. Else IT will take you for the ride and add heavy penalty. I am one of the victim and paid 29K as penalty (@ rate 200 Rs per day).
Regards,
Kapil
I will not suggest this. IT department has records of all the transactions therefore any wrong information from taxpayer end will be considered as an intentional act to evade penalty.
Hi Nitin,
We (myself and spouse) are the joint owner of the property as per agreement with the builder.
My spouse % in making payment to builder is 20% (rest is paid by myself + bank EMI).
How ever the TDS payment for my spouse is not the 20% (I have made most of the payment to IT from my bank account)
Can you please let know the consequences of the situation?
Will it create any problem in future and how?
Regards,
Kapil
You may receive notice from Income Tax department along with a penalty as deemed fit by the AO. The TDS should be deducted and deposited in the proportion of ownership in the property.
Thanks. In that case is there any way to get the TDS refund for extra payment?
It is subjective. AO may impose penalty as TDS is not deducted and paid by you.
Hello Nitin
I booked an apartment with value 6630250 and made four installments till now.The property is jointly shared by my spouse and myself. I had paid the TDS for these installments using 26QB. For the first and third installments I paid the TDS quoting my PAN number and for second and fourth installments I paid the TDS quoting my spouse’s pan no.
What are the implications for this.
Any corrections can be made now.
Next payment will be funded by bank.Bank said that TDS has to be paid from your end.They will pay the builder the total -TDS. They will not deposit the TDS amount my bank account and said it has to be paid from me only.
Is it correct??? Should I pay this TDS from my personal income???
Kindly clarify me
Thanks in Advance
Murali
Bank should deduct TDS and deposit in your account. You may submit written application with the bank to deduct TDS as per provisions of IT Act.
Dear Nitinji,
Many thanks for your efforts to create awareness on the complex and evolving TDS topic.
I’ve bought an under-construction property for which I paid 2 large installemnts in July 2014 and Feb 2015. I was not aware of TDS penalties etc and paid TDS with applicable interest for these 2 installments in Sep 2015.
The builder has refused to accept the TDS certificates, as it was paid in Sep 2015 for FY 2014-15 (AY 2015-16), by which time builder had already filed their return for the year. Further, I’ve now got huge demand notices from IT department u/s 234E for these challans.
1. Can the TDS challans be corrected to change the AY from 2015-16 to 2016-17? I believe TDS CPC has now recently enabled online 26QB correction using digital signature. But if the payment date is in FY 2014-15, can the AY be in AY 2016-17? If I change payment date to FY 2015-16, that would amount to misrepresentation?
2. The builder is asking to apply for a refund on the TDS deducted from IT deptt. And to deposit TDS again showing current date as payment date of installments. Is there any process to get refund of TDS paid?
Many thanks.
1. It is not possible.
2. You can but as the payment is already made you will invite trouble for yourself.
Please check my following post for more details
https://www.nitinbhatia.in/real-estate/26qb-challan-correction/
Hello Nitin,
In my case there are two sellers and in 26QB there is option to enter only one PAN details. So I derived that two forms needs to be filled.
Now when I tried to fill first form entering details such as Total Property value as 71 Lac where as further when I put 3550000 as Total Amount Paid /credited and Basic TDS as 35500 it is throwing error message as total property vale and TDS amount is not matching. Now since I have to fill tow forms I obviously have to divide the amount. So how this is to be handled while filling tow forms.
Also what would be under Date of Tax deduction.
Thanks.
Yunus
9819916180
In the section “Whether more than one Transferor/Seller”, you have to select YES. Date of payment is date of TDS deduction provided you made payment after deducting TDS.
Dear Sir,
I have applied for a home loan for construction of house. I have made an agreement with an individual contractor for complete construction and also requested Bank to disburse directly into his account.
Now the Banker is saying that disbursement is subject to 2% of TDS however when i was studying abount section 194C i came to know that if an individual is paying amount to contractor it is not subject to TDS moreover in case of an individual contractor the TDS rate is 1%.
Please guide me in the matter.
It seems the payment is made to the company of a contractor. Under section 194C, TDS is 1% if the payment is being made to an individual. On the other hand, TDS is 2% if the payment is being
made to a person other than an individual i.e. company/organization/agency etc.
If the contractor is individual you may clarify the same to your bank and request them to correct the TDS deduction %.
Dear Sir,
I have a joint home loan with my husband with equal ownership. So we have a joint account. Since the loan amount is given to the builder in 18 equal installments. can I pay the 1% TDS for 1 installment and my husband pay the 1% TDS for the next installment that we pay the TDS for 9 installments each. Or should each us pay half of the TDS amount for each installment,
Thanks,
Jaya
For each payment/installment TDS is deducted and deposited by all the buyers in proportion of ownership. Therefore, you and your husband have to pay 1% TDS on the 50% of installment amount provided there is Single Seller.
Dear Mr Nitin, In my case the builder is filing TDS on my behalf. He has been giving me all documents and I send him Form 16Bs. Every thing is fine except that I dont have copies of 26QBs filed by him.Can I ask him to provide me 26QB copies for our future use/record ?
You may ask for acknowledgement copies.
Hi!
My under construction flat is worth Rs.60L; I have paid Rs.15L till now, & my banker has disbursed Rs.20L;
And now for further disbusement banker is asking for TDS Challan.
Can I delay this? Or have to submit it ASAP?
The total loan amount is Rs.45L, so will there be any TDS refund from banker to my account?
TDS is due on 35L. You have not mentioned dates of payment but you have to deposit the same on or before 7th of next month in which the TDS is deducted. The bank should deduct the TDS on your behalf and deposit the same in your account so that you can deposit with the Govt authorities.
Dear Nitin,
I have a joint loan with my husband and we are going for out first disbursement from HDFC. They have asked us to sign one agreement saying we will be paying the 1% TDS. So in the disbursement letter they have asked us to mention the amount (less 1% TDS). Now they will release one cheque to the builder. In this case how can both of pay the TDS in the proportionate ownership. In the form 26QB, do we divide the cheque amt in the propotion and mention that in the “Total amt paid/credited” and the corresponding TDS amt? Even if only one cheque is paid to the builder?
Thanks,
Jaya
As i understand that this cheque is equivalent to the TDS amount i.e. 1% of disbursement. Now i am not sure why this cheque is issued to the builder. Ideally Two cheques should be issued i.e. to you and your husband so that you both can deposit the TDS in proportion of ownership in property. Lastly, you need to check in whose favor this cheque is issued.
Dear Nitin,
Say the installment amt is 500000 so the TDS would be 5000. Now the bank will issue a cheque of 495000. And me and my husband will have to pay the TDS of 5000, of which I will need to be 2500 and my husband 2500. So when we both fill our respective 26QB form, In the “Total amt paid/credited” field do we mention 250000 (half of the instalment amt) and TDS as 2500 each even if the bank is only issuing one cheque for 495000?
Thanks,
Jaya
As i mentioned in previous comment that bank should have issued 2 cheques. Anyways, technically what you mentioned in correct to avoid TDS penalties. You may file challans as per calculation shared by you.
Hi Nitin,
An insightful article from you as always.
Slightly digressing from the main topic but w.r.t TDS, my resale property purchase was significantly delayed owing to NRI joint-sellers needing to approach IT for a lower TDS order u/s 195, issued in favor of the buyers (TAN holders). The IT order has now been received by the seller’s auditor and while it mentions a much lower TDS %, it also contains a hand-written statement at the bottom (duly stamped by assessing officer) directing buyer to “issue a cheque of Rs XXX in favor of REC bonds”.
2 questions:
a) Can IT actually specifically direct a buyer to deposit such an amount in bonds on behalf of the seller? I ask this as I was specifically told by NRI seller earlier that he wishes to repatriate the funds & not re-invest.
b) The TDS order has a validity period until March’17. Given the significant delays by the sellers, if I were to change my mind now as a buyer and back out of the deal, do I need to intimate IT about the same before the order expiry? Are there any other implications I need to be concerned about? (assuming I write-off the token amount)
Thanks,
Karthik
a) No. Something fishy.
b) No. There is NO implication. You can back out from the deal.
Hi Nitin,
I am buying a property worth 7567000 and registration is due next week. This consists 40L as home loan + rest as in pocket contribution e.g. 3570000. So far I have paid seller 2L+3L+24.5L in 3 installments within the last week and rest amount is due before the final registation which would be 4th installment. While bank is suppose to disburse 40L somewhere this week at the time of registration. In my draft sale deed, advocate mentioned about TDS deduction and challan number. Question is –
1) You mentioned that we shouldn’t pay TDS in advance then how can I put TDS challan number(s) in sale deed at the time of registration?
2) If I can or should pay in advance then should I pay TDS on each installation/transfer e.g. 4 TDS challan numbers?
3) should I ask bank to deduct TDS from their contribution e.g. 1% of 40L and deposit into my account? If yes, then this would be 5th challan number I should quote in my final sale deed? please confirm?
4) Me and my wife have equal ownership in the property and applied for joint home loan however I will pay EMI from my NRE account as she is not working. What practice we should follow here for TDS deposit?
1. You can pay TDS for installments already paid to the seller. The TDS for amount due at the time of registration is due till 7th of next month.
2. NA
3. Yes. Bank will issue you bankers cheque or DD. In sale deed just mention TDS is deducted and will be deposited by due date.
4. TDS is in proportion of ownership.