The government is said to be reviewing a proposal put forth by banks in the country which demands that sale of immoveable property mortgaged to lenders for recovery of bad loans via auction be made exempt from tax deducted at source (TDS). The current laws require sellers to pay 1 percent of the value of properties exceeding Rs 50 lacs towards TDS when sold. It also allows for the loan defaulter to claim benefits of up to 1percent of this sales value. Therefore, the banks recommend that an exception be made with such sales to ensure there is no financial loss for lenders and loan defaulters are made to pay.
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As per Section 194-IA of the Income Tax Act, TDS at the rate of 1 percent is deducted from the consideration of the transfer of an immoveable property exceeding Rs 50 lacs. When a bank and lender sells a property that has been recovered from a loan defaulter, it become obligated to pay this 1 percent which in turn can be claimed back by the loan defaulter via the prevailing system. This is causing much heartache amongst lenders who feel they are being cheated out of money that is rightfully owed to them, only for the debtor to be able to claim it back from the current system. Therefore, they have put forth a recommendation to the current government to create a provision in this regard for properties that have been seized and sold to recover unpaid dues.
The issues mentioned in the proposal have been discussed in several meetings called by the finance minister in the last month. There are considering the matter seriously and are likely to provide some answers shortly. Banks want the current authorities to recognise the anomaly and carve out an exception for financial institutions in this regard to limit their exposure to financial losses. At present the current system has created an unintended way for defaulters to benefit, instead of helping financial situations penalise and recover as much of their pending dues as possible.
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