TDS on Property purchased on Home Loan – EMI Payments

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With effect from 1st June 2013, TDS is required to be deducted @ 1% on all payments made for purchase of property. This TDS is required to be deducted on purchase of all properties which are more than Rs. 50 Lakhs irrespective of whether they are Residential or Commercial, irrespective of whether it is a Flat or a Building or Vacant Land and irrespective of whether the property is under construction or is construction completed.

TDS on Property is required to be deducted in all cases except in case of purchase of Agricultural Land. (Recommended Read: All about TDS on Property @ 1% under Section 194IA)

TDS on Property purchased on Home Loan – EMI Payments

Whenever you take a Home Loan, the Banker makes direct payment to the seller. The Banker does not issue the cheque in the name of the Buyer but issues the cheque in the name of the seller. This article tries to show how the TDS would be deducted in such cases wherein the amount for the purchase of property on Home Loan has been paid directly to the seller.

feat-Tax-TDS

To understand how TDS would be deducted in case of properties purchased through Loan – we should first try and understand what the income tax act says. The Income Tax Act says that TDS on Property is to be deducted whenever the buyer makes any payment to the seller for purchase of property.

The law says that there are 2 parties in any agreement for sale of property i.e. the buyer and the seller and there is no mention of the bank loan.

TDS to be deducted by Buyer
Time of deduction of TDS Whenever any payment is made to the Seller

It is the responsibility of the buyer to deduct the TDS whenever any payment is made to the seller.

TDS on Home Loan

When the banker makes the payment to the seller, this payment is being made by the Banker on behalf of the buyer. And as per law, it is the responsibility of the buyer to deduct the TDS. Therefore, in case of payment made through Home Loan – the TDS would be deducted at the time of making the payment to the seller.

It is important to note that TDS would be deducted when the payment is made to the seller. So even when the banker makes the payment to the seller, the TDS is required to be deducted. It is not the responsibility of the Bank to deduct the TDS. The Bank is only acting on behalf of the buyer by making the payment to the seller. It is the responsibility of the Buyer to deduct the TDS.

This can be explained with the help of an example. For eg: Mr X purchases a property for Rs. 80 Lakhs  from Mr. Y and avails Rs. 20 Lakhs as Home Loan. In such a case, the Bank would directly make the payment of Rs. 20 Lakhs to Mr. Y and not deduct any TDS on the same.

It is the responsibility of Mr. X to deduct the TDS and deposit the same with the Govt.

Transaction Value for Purchase of Property: Rs. 80 Lakhs
Amount of Home Loan Rs. 20 Lakhs
Balance is Self Financed by Mr. X Rs. 60 Lakhs
TDS @ 1% Rs. 80,000

In the above mentioned case, the Banker will not deduct TDS from the Rs. 20 Lakhs paid by the Bank to Mr. Y. It is the responsibility of Mr. X to deduct the TDS while making the payment to Mr. Y.

Payment to be made by Mr. X to Mr. Y (Self Financed) Rs. 60,00,000
(Less) TDS to be deducted Rs. 80,000
Net Payment to be made by Mr X himself to Mr. Y Rs. 54,20,000

The insertion of Section 194IA for Deduction of TDS on Property @ 1% would not make any difference in the way tax benefits for Home Loan are given to an Individual and the same tax benefits would continue to be given.

TDS on Loan EMI’s

The TDS is to be deducted when the payment is made to the Seller and not when the repayment is done by the buyer to the Banker. And therefore, TDS is not required to be deducted when the EMI is being paid as the EMI is being paid to the Banker and not to the Seller.

However, if you have taken a construction linked plan and the payment is being made to the seller in Installments, then TDS would be required to be deducted @ 1% on all payments made to the Seller.

The Golden Rule to be remembered while deducting TDS on Property is that TDS @ 1% would be deducted whenever any payment is being made to the Seller.

Other Relevant Points

  1. First the Payment would be made to the Seller and then the TDS would be deposited with the Govt. This TDS should be deposited within 7 days from the end of the month in which the Payment has been made.
  2. After depositing the TDS, the buyer shall give Form 16B to the Seller.
  3. Some Banks reimburse the TDS deducted whereas some don’t. You’ll have to check with the banker regarding the same.
  4. The TDS is deducted at the time of making the payment irrespective of the Date of Registration.

Karan is CA by Qualification with the rare distinction of being awarded All India Rank 22. He is also the founder of this website and loves to help people with their Tax Queries.