How to deduct TDS through Home Loan?

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.