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How Can I Deduct TDS on Home Loan in India?

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Last Updated on February 28, 2024 by Kanakkupillai

All businesses and individuals are required to pay TDS because it falls under the Advanced Income Tax Act of 1961. The government uses the TDS idea to reduce tax evasion and collect money at the source.

Some commonly seen examples of these sources of income are:

  • Salary,
  • interest,
  • rent,
  • brokerage,
  • professional services fees and other incomes earned by taxpayers.

By filing Form 26AS/TDS certificate, you can obtain the difference if TDS in a fiscal year exceeds income tax liability. Receivers may be subject to greater TDS on their income if they don’t provide a PAN card. The two most crucial documents for TDS deposit are TAN and Pan.

Who May Retain TDS?

An organisation can deduct from a bill paid if its books of account are audited and it is required to make payments under TDS. Because they are not permitted to do so, individuals or HUFs cannot deduct TDS.

The explanation for why TDS is taken might simplify the idea of when it is taken. TDS is a type of income tax that is levied immediately at the source of the income. As a result, paying a bill or an amount is the perfect moment to deduct it.

On or before the seventh day of every month, the deductor must deposit the TDS in the government’s account. TDS deduction rates vary depending on the goods and services.

Home Loan

For most individuals, owning a home is a major accomplishment and a dream fulfilment. You may design your home to fit your requirements and preferences if you own it. However, constructing your ideal home might be costly. To that aim, you can apply for financial aid and use a home loan to boost your budget.

Continue reading to learn more about a housing loan and how it may help you buy the home of your dreams.

As was already noted, banks and other financial organisations offer financial aid in the form of home loans. The loan amount supplied by these banks or financial organisations may enable you to boost your budget for home purchases. If you satisfy the basic requirements or necessities laid down by banks or financial institutions for a home loan for a particular term, you may apply for the loan. You must pay back the home loan amount you took out during the maximum tenure you have chosen for the loan, along with the interest calculated at the specified interest rate communicated first. Like any other loan, the home loan must be repaid in regular monthly instalments, which include the principal amount and a component of interest.

Nowadays, most banks provide home loans, which not only assist you in buying homes that are already built but also assist in building a home from the ground up. You can also apply for a home loan to enhance your existing owned homes, like renovations and maybe repairs.

What advantages does a home loan offer?

The following advantages are available to you when you choose a home loan for purchasing a new home or even for the maintenance and repair of your currently owned home:

  • Taxation:

With a home loan, you can deduct the interest and principal balance from your taxable income. You may deduct up to INR 1.5 lakh for principal repayments and up to INR 2 lakh for interest repayments under Sections 24B and 80C of the Income Tax Act 1961, respectively. A home loan also enables you to take advantage of additional tax advantages.

  • Rate of Interest:

The interest rate on a home loan is considerably cheaper in comparison to other types of loans that are offered. Along with this current Home Loan, you can apply for a Top-Up Loan in case of a financial emergency.

  • Do Your Research:

Banks examine the property from a legal perspective when applying for a home loan to ensure the documentation is genuine and the title is clear. By taking this step, you may avoid falling victim to fraud and complete the due diligence to legitimise your property.

What are some crucial things to consider while applying for a home loan?

Along with understanding what a home loan is, it’s critical to understand how to choose wisely among the many different home loan options available. You must take into account the following aspects to apply for a home loan that will best meet your needs:

  • Rate of Interest:

Be sure to comprehend the type of home loan interest rate provided to you. During the term, a variable interest rate may change instead of a fixed interest rate, which does not change.

  • Tenure:

The duration is crucial in determining the monthly EMI amounts owed on the due date. Knowing the precise tenure will thus enable you to make the necessary financial plans.

  • Application:

Selecting a home loan with an easy application procedure and little paperwork is beneficial. The best home loan to choose is one that supports online applications and prompt disbursements.

How do you deduct TDS on a home loan in India?

Ducting TDS through a Home Loan is one of the most frequent issues buyers encounter. The only duty for a TDS on the buyer is to deduct and deposit one to the account of the government of India.

A bank or financial institution will occasionally assist the buyer, but frequently, they will decline. There isn’t a set procedure for TDS deduction through a home loan. In this regard, I run into unusual and bizarre instances. Banks and financial entities frequently avoid the inconvenience of deducting TDS and instead place the full burden on the customer. If a buyer is unaware of the relevant laws and rules, the banks will exploit them.

Therefore, a buyer must know the relevant laws and norms. TDS is taken off under Section 194IA in the case of an Indian resident seller. However, TDS is subtracted under Section 195 in the event of an NRI seller. Instead of a selling deed value or capital gain on the property, a buyer should subtract TDS from the entire consideration value of the property.

Here, I’d like to use a few real-world instances to dispel ambiguities and make this more understanding and purposeful.

In one of the cases, a bank advised a loan taker that she may deduct the entire TDS from her contribution rather than through her home loan. It is not the proper method because the TDS is only required at the time of payment. The main issue is with NRI sellers under TDS u/s 195. In one instance, the bank advised my client that he could pay TDS under Section 195 out of his pocket. The bank will deduct the TDS amount from the Home Loan balance once he deposits the TDS certificate.

The argument was that TDS through a home loan is akin to a home loan refinancing. Taking into consideration the value of INR 1 Crore, the TDS amount was INR 20 lac. My client had to scramble from pillar to post to secure this additional sum.

Which is a truly difficult situation for any person.

The final option, in which the bank informed my client that TDS through a home loan is not applicable, is one of the finest scams. In brief, TDS should not be taken from and deposited for a home loan amount; it only applies to the buyer’s contribution.

This makes anyone ponder who recruited these workers. I’m not sure if they’re doing it knowingly or accidentally. Both times, the bank ought to go the extra mile and ensure that they educate and train their employees such that they do not appear in front of those customers who are aware of the system setting, as it might even put the banks at reputational risk.

To be followed: TDS via Home Loan – Some Vital Points

(a) Be explicit when applying for a home loan

The best course of action is to clarify how the bank would manage TDS through a Home Loan. Even though there is no standard procedure, I will present one often used later in this essay. This element is crucial because of how much money an NRI or Non-Resident Indian seller is selling for.

Instead of any Direct Selling Agents or DSA, you should only address this issue with the bank or HFC, i.e., Housing Finance Companies employees. Even if a DSA swears to the moon, his words and dedication are not useful or reliable. You should send a letter to a bank employee once the TDS via Home Loan process has been discussed and finalised.

(b) Joint Home Loans

One more significant area of uncertainty is that I believe it would be worth advising customers to start a joint savings account before applying for a mortgage. The TDS needs to be subtracted and deposited according to ownership share. There is a misperception that an earning buyer or borrower can deduct and submit TDS for the whole amount if one of the co-owners or co-borrowers is not employed. It is improper. In the case of a combined house loan, joint purchasers can share their joint account with the bank, HFC, or the financial institution.

Each buyer may deposit the TDS in the percentage of ownership when the bank deposits the TDS amount in a shared bank account. If a joint bank account is not possible, you might give the bank a list of individual bank accounts and ask them to deposit TDS funds into each account in proportion to ownership.

(c) TDS Advance Deposit

If the bank insists on TDS deposits made in advance, you can get written confirmation from the bank. In the case of an NRI seller or before final distribution, a bank may request that you deposit an advanced TDS. Trust me, the bank won’t ask for an advance TDS in writing as the TDS is only required at the time of payment. A buyer may deposit the TDS on or before the seventh day of the next month from which the TDS is taken. The buyer may deposit on or before the date established by Sections 194IA or 195, which is the 7th of the next month, even in the event of TDS through a Home Loan.

TDS via Home Loan – Common Procedure

As there is no set procedure, let’s have a look at a commonly practised procedure or method that is most frequently used to deduct TDS through a home loan:

1. Submit a Written Request

Before the first disbursement and after your home loan application has been granted, you must submit a formal application to the bank. Clearly state in the request that TDS will be deducted on your behalf through a home loan. Also, give the bank account information necessary to transfer any TDS taken in the buyer’s name. It is wise to provide calculations when dealing with an NRI seller. Last but not least, get a Bank or financial entity or HFC staff to acknowledge this written request, as banks will occasionally use the justification that the buyer has not requested a TDS deduction.

2. TDS should be communicated to the seller via Home Loan details

Next, let the seller know that TDS would be deducted from the loan amount. To prevent confusion or disagreement in the future, it is preferable to include the TDS information in the Sale Agreement or Sale Deed.

3. Payment from the Bank

A bank will take the TDS out of the seller’s payment and deposit it in the borrower’s bank account.

4. Submit the TDS

The buyer must deposit the TDS by the deadline after receiving the TDS disbursement from the bank and submit a copy of the TDS certificate to the seller and the bank.

The buyer is solely responsible for withholding and depositing the TDS through a home loan. Any oversight or error on the part of the bank is not a justification for a delay in:

  • deduction,
  • deposit, or

Occasionally, if the seller is a builder, the builder will deposit the TDS on the buyer’s behalf. In situations like this, we can see some frequently made blunders or errors, such as using the wrong PAN, issuing a single challan to several customers, etc. These practices leading to mistakes or errors cannot be favoured or advocated. The buyer must subtract TDS from their personal contribution and deposit their home loan. The entire procedure is straightforward and can be done online.

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