How To Deduct TDS On Home Loan In India?

Since June 1, 2013, a 1% TDS surcharge has been compulsory for all real estate transactions and expenditures. The law mandates the deduction of this TDS from the purchase price of all properties costing more than ₹50 Lakhs. It is regardless if the property is residential or commercial and also doesn’t consider the state and level of construction on the land.

Leaving out the agricultural land purchase, all real estate transactions must include a TDS reduction. Section 194IA helps you with the intricacies of the One Percent TDS rule on Property Rule.

The following article reveals TDS and its link mortgage loan interest as well tax systems on loan EMIs.  

Mortgage Interest and Acquired Property Tax Deduction

Typically, when you receive credit, the bank promptly reimburses the supplier. The bank makes the check payable to the vendor rather than the customer. To determine how the government collects TDS for credit-financed real estate purchases, we must first review the provisions of the Income Tax Act. As per the Income Tax Act, the authorities collect TDS on Property from the purchase price of real estate whenever a customer makes a payment to a vendor.

With no mention of bank debt or loan, the law specifies that every real estate transaction must involve a buyer and a seller.

  • The payer of the Tax Deducted at Source is the purchaser.
  • The purchaser should deduct TDS when sending funds to the seller.
  • There will be a TDS deduction from each payment the consumer makes to the vendor.

The Concept Of TDS On Home Loan

The financier acts represents the purchaser when making a payment to the vendor. The law stipulates that the purchaser must deduct the TDS. In the instance of a mortgage, therefore, the TDS deduction happens from the purchaser’s payment to the selling party.

There is a TDS deduction whenever the bank pays the seller via loan. The Bank has no obligation to withhold the TDS. However, by making payment to the vendor, the Bank functions as the customer’s sole representative. The purchaser is responsible for the TDS, which will reduce the amount owed to the vendor before its issuance.

You may understand this through a simple illustration. Mr Singh purchases a home from Mr Batra for ₹85 lahks and obtains a ₹30 lakhs housing credit. In this scenario, the bank will pay Mr Batra ₹30 lahks without the TDS deduction. It’s Mr Singh’s responsibility to deduct and remit the TDS to the government.

  • The purchase price of the property is ₹ 85 lakhs.
  • Mr Singh gets a ₹30 lakh credit. 
  • Mr Singh is contributing the remaining 55 lakhs personally.
  • TDS at 1% is ₹ 85k.

Mr Singh is responsible for deducting TDS from the ₹ 30 Lakhs he pays Mr Batra. The Banker doesn’t need to do so.

  • Mr Singh owes ₹ 55 lahks to Mr Batra. (Self-Financed).
  • There will be a TDS deduction of ₹ 85k.
  • Mr Singh will give Mr Batra a total of ₹ 54,15,000.

Incorporating Section 194IA, which elaborates on TDS deduction on Property at 1%, would not change how a person receives tax benefits for a mortgage loan. He/she may avail of the original tax benefits.

Tax System on Loans EMI

TDS deduction happens when Seller receives the payment, not when the purchaser repays the debt. Since the Banker will receive the EMI payments and not the Seller, no TDS is required to be withheld from them.

If you have a construction-linked mortgage loan interest and are making EMI payments to the banker, every EMI is liable for a 1% TDS deduction.


The standard procedure for real estate transactions is to deduct 1% of the total purchase price as TDS. After the purchaser pays the Seller, they must file TDS with the government. This TDS must reach the government by the seventh day after the payment month. The TDS is recorded at the time of payment, regardless of the account creation date. This knowledge will help you make good decisions when you apply for home loan

Leave a Reply

Your email address will not be published. Required fields are marked *