Proposal on TDS relief on property sold for recoveries under review

The government is examining a suggestion from banks to exempt sale of immovable property mortgaged to lenders for recovery of bad loans via auction from tax deducted at source or TDS.

Section 194-IA of the Income Tax Act mandates that TDS, at the rate of 1%, be deducted from the consideration for the transfer of an immovable property if it exceeds ₹50 lakh. Lenders have represented to the government for keeping such sales out of the purview of TDS.

"Banks have argued that this results in losing 1% of the sale value of the property during recovery. The matter is under consideration," said an official aware of the deliberations.


Banks say the loan defaulter claims benefit to the extent of 1% of sale value of the property citing the TDS and they want this corrected.

The issue had figured in discussions at a meeting called by the finance ministry last month on sectoral issues including loan recoveries, the official added.

Another senior bank executive said lenders have sought that a specific exemption be provided in such cases.

"This will serve a dual purpose. First, the defaulter will not get any benefit, and secondly, there will be no financial loss to the bank," he said, adding that banks can further provide details of such transactions to tax authorities.

As per the latest data, the number of cases referred by scheduled commercial banks under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act for FY 2019-20 and 2020-21 are 105,000 and 57,331 (provisional), respectively

Experts say this situation, where the defaulter seems to benefit, is an unintended consequence of the way current provisions are legislated vis-a-vis how seized properties are transferred or sold by financial institutions, including banks.

"To address this anomaly, an exception could be carved for financial institutions, for tax deduction on purchase of properties in such cases, so that they are not worse off," said Vikas Vasal, national managing partner-tax at Grant Thornton Bharat.