TDS on Purchase of Property: A Guide for Home Loan Borrowers

What is TDS on Purchase of Property?

When you buy a property using a home loan, it’s essential to understand TDS (Tax Deducted at Source) on property purchases. According to Section 194IA of the Income Tax Act, 1961, if the property’s value exceeds ₹50 lakh, the buyer must deduct TDS at 1% of the total sale price. You must deduct this TDS at the time of payment, whether you’re using a home loan entirely or combining a loan with personal funds.

Importance of TDS in Home Loan-Funded Property Purchases

For home loan-funded property purchases, TDS plays a crucial role in:

1. Tax Compliance: It ensures proper reporting to tax authorities, keeping the transaction transparent.
2. Smooth Home Loan Processing: Lenders require TDS compliance to avoid legal complications, ensuring a smoother loan disbursement process.
3. Applicability to High-Value Transactions: TDS applies to properties priced above ₹50 lakh, a common threshold for home buyers.

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How TDS Affects Your Home Loan Process

TDS Deduction and Home Loan Disbursement

When purchasing property with a home loan, TDS deduction is a critical step. Here’s how it works:

1. Calculate TDS Amount: Deduct 1% of the total property value to find the TDS amount.
2. TDS Deduction Before Disbursement: Lenders may ask for proof of TDS deduction and payment before disbursing the loan amount.
3. Deposit TDS: Buyers must deposit TDS with the government using Form 26QB within 30 days of the deduction.
4. Provide TDS Certificate: After payment, you must provide the TDS certificate (Form 16B) to the seller and lender for documentation.

TDS Compliance During Property Registration

During property registration, you must provide proof of TDS payment:

1. Submit TDS Proof: This ensures smooth property registration.
2. Lender’s Role: Lenders help ensure that TDS-related documents are in order to validate the legal transfer of property.

Filing TDS for Home Loan Borrowers

Steps to File TDS on Property Purchase

Home loan borrowers should follow these steps to comply with TDS regulations:

1. File Form 26QB: Submit Form 26QB online through the TIN NSDL website, detailing the property, transaction, buyer, seller, and loan.
2. Pay TDS: Pay the TDS online or at an authorized bank branch.
3. Download Form 16B: After paying, download Form 16B from the TRACES portal and give it to the seller and lender.

Common Mistakes to Avoid

1. Incorrect PAN Details: Ensure the correct PAN details of both the buyer and seller to avoid higher rates or rejections.
2. Delays in TDS Payment: Late TDS payment can lead to penalties, delaying loan disbursement and registration.

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Implications of Non-Compliance with TDS Rules

Penalties for Non-Compliance

Failure to comply with TDS rules can result in:

1. Interest on Late Payment: You may face 1.5% interest per month on late payments.
2. Late Filing Fees: Delays in filing Form 26QB result in a ₹200 daily fee, up to the total TDS amount.
3. Penalties for Non-Deduction: Not deducting TDS can lead to penalties equal to the undeducted amount, creating financial and legal issues.

Impact on Home Loan Disbursement

Non-compliance can delay your home loan disbursement, as lenders require proof of TDS payment before releasing funds.

Conclusion

Understanding TDS on property purchases is vital when buying a home with a loan. By following TDS regulations, you ensure a smooth transaction, avoid penalties, and secure timely home loan disbursement. Whether you’re a first-time buyer or upgrading, knowing how to calculate, deduct, and file TDS helps you manage property transactions more effectively.

Vridhi Home Finance can guide you through the home loan and TDS process, ensuring your property purchase stays compliant and financially secure.