A Comprehensive Guide on TDS in Home Loan

Before you receive your salary or any other source of income there is a system called TDS will be deducted. You can claim it at the end of the financial year. The person who pays you deducts the tax and sends it directly to the government, so it’s like paying your taxes in advance.

Example: If you earn ₹50,000 as a monthly salary and the TDS rate is 10%, your employer will deduct ₹5,000 from your salary before paying you. This ₹5,000 is sent directly to the government as tax. You receive ₹45,000, and the deducted amount counts towards your total tax liability for the year.

TDS in the Context of Home Loans

When it comes to home loans, TDS plays a really important role in property transactions, especially in the case of high-value properties. According to the Income Tax Act, TDS must be deducted by the buyer when purchasing a property if the transaction value exceeds a certain threshold. This deduction is then deposited with the government on behalf of the seller.

Applicability of TDS on Property Purchases

1. Threshold Limit for TDS Deduction:

• As per Section 194IA of the Income Tax Act, TDS is applicable on the purchase of immovable property (excluding agricultural land) if the transaction value exceeds ₹50 lakhs.

• Important: The TDS rate applicable is 1% of the transaction value. This means that if you buy a property worth ₹75 lakhs, you are required to deduct ₹75,000 (1% of ₹75 lakhs) as TDS and deposit it with the government.

2. Who Should Deduct TDS?

• The responsibility of deducting TDS lies with the buyer of the property. Whether you are buying a residential property, commercial property, or land (except agricultural land), if the property’s value exceeds ₹50 lakhs, you are required to deduct TDS.

3. When Should TDS Be Deducted?

• TDS should be deducted at the time of making the payment to the seller. If the payment is made in installments, TDS should be deducted on each installment proportionately.

4. How to Deposit the TDS?

• The deducted TDS must be deposited with the government using Form 26QB within 30 days from the end of the month in which the deduction was made. The buyer can do this online through the TIN-NSDL website.

• After depositing the TDS, the buyer must issue a TDS certificate (Form 16B) to the seller as proof of tax deduction within 15 days of depositing the TDS.

The number of percentages mentioned above may vary due to changes in government policies, so be sure to check the official government website before making any decisions

Impact of TDS on Home Loans

While TDS is directly related to property transactions, it also has indirect implications on home loans:

Loan Disbursement:

• When you apply for a home loan, the loan amount is usually disbursed based on the property value and your eligibility. However, the bank might consider the TDS amount when calculating the loan disbursement. For example, if your property value is ₹75 lakhs, and you are required to deduct ₹75,000 as TDS, the bank might disburse a loan amount considering the net amount after TDS deduction.

Loan Eligibility:

• TDS deduction might affect your loan eligibility. If the TDS amount is high, it might reduce the overall loan amount you can avail of, depending on the bank's policies.

Document Submission:

• Some banks may require proof of TDS deduction and submission when processing your home loan application. Ensure that you have all the necessary documents, including Form 26QB and Form 16B, to avoid any delays in loan approval.

Steps to Deduct and Deposit TDS

1. Calculate the TDS Amount:

• Calculate 1% of the total transaction value. If the property is purchased in installments, calculate 1% on each installment.

2. Visit the TIN-NSDL Website:

• Go to the TIN-NSDL website and navigate to the e-payment of TDS on the property.

3. Fill in Form 26QB:

• Fill in the required details in Form 26QB, including the buyer's and seller's PAN, property details, and the TDS amount.

4. Make the Payment:

• Make the TDS payment online using net banking or at an authorized bank branch. Ensure that the payment is made within 30 days from the end of the month in which the payment was made to the seller.

5. Generate Form 16B:

• After making the payment, download and issue Form 16B (TDS certificate) to the seller within 15 days.

6. Submit the Documents to the Bank:

• If required, submit the TDS payment proof (Form 26QB) and TDS certificate (Form 16B) to your bank during the loan disbursement process.

Penalties for Non-Compliance

Failure to deduct or deposit TDS on property transactions can result in penalties and interest charges:

1. Interest on Late Deduction/Deposit:

• If you fail to deduct TDS or deposit it on time, you may be liable to pay interest at the rate of 1% per month for late deduction and 1.5% per month for late deposit.

2. Penalty for Non-Filing of Form 26QB:

• If you fail to file Form 26QB within the stipulated time, a penalty of ₹200 per day may be levied until the form is filed. However, the total penalty cannot exceed the amount of TDS.

3. Prosecution:

• In severe cases of non-compliance, the Income Tax Department may initiate prosecution proceedings, which could result in a minimum of 3 months and a maximum of 7 years of imprisonment, along with a fine.

TDS Exemptions and Deductions

While TDS on property purchases is mandatory, there are certain exemptions and deductions available:

1. Agricultural Land:

• TDS is not applicable on the purchase of agricultural land. This exemption is provided under Section 194IA of the Income Tax Act.

2. Seller’s Income Tax Returns:

• If the seller’s total income is below the taxable limit, they can apply for a TDS exemption certificate from the Income Tax Department, which exempts the buyer from deducting TDS.

3. Double Taxation Relief:

• If TDS is deducted on a property purchase, the seller can claim a credit for the TDS amount while filing their income tax returns, reducing their overall tax liability.

Summary

Conclusion

knowing about TDS (Tax Deducted at Source) is important for homebuyers. It helps you follow tax rules and avoid problems. If you buy a property for more than ₹50 lakhs, you must deduct and pay TDS. Being informed and doing this correctly will help make your home-buying process go smoothly.

Make sure that you are well-prepared with all the necessary documents and knowledge about TDS before entering into a property transaction. This will not only make the process smoother but also help you avoid any financial pitfalls.

Frequently Asked Questions (FAQs)

1. What is the threshold limit for TDS deduction on property purchases?

• TDS is applicable on property purchases where the transaction value exceeds ₹50 lakhs.

2. Who is responsible for deducting TDS on a property purchase?

• The buyer of the property is responsible for deducting and depositing TDS with the government.

3. Is TDS applicable on the purchase of agricultural land?

• No, TDS is not applicable on the purchase of agricultural land.

4. What happens if I fail to deduct or deposit TDS on time?

• You may be liable to pay interest and penalties, and in severe cases, face prosecution.

5. Can I claim a credit for the TDS amount while filing my income tax return?

• Yes, the seller can claim a credit for the TDS amount while filing their income tax return.