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The government is considering a suggestion by banks to exempt lenders from sale of mortgaged immovable property to recover bad loans through tax deducted at source or auction. TDS,
Section 194-IA of Income tax The Act mandates that TDS be deducted at the rate of 1% from the consideration for transfer of immovable property above Rs 50 lakh. Lenders have made representations to the government to keep such sales out of the purview of TDS.
An official in the know of the matter said, “Banks have argued that this leads to a loss of 1 per cent of the sale value of the property during recovery. The matter is under consideration.
Banks say the loan defaulter claims profit to the extent of 1% of the sale price of the property citing TDS and they want to recover the same.
The official said the issue came up in a meeting convened by the finance ministry last month on sectoral issues including debt recovery.
Another senior bank executive said that lenders have demanded that special dispensation be given in such cases.
“This will serve a dual purpose. First, there will be no benefit to the defaulter and second, there will be no financial loss to the bank,” he added. 
Experts say this situation, where the defaulter appears to be benefiting, is an unintended consequence of the way the existing provisions are legislated, in which confiscated properties are transferred or sold by financial institutions, including banks.
“To remove this anomaly, an exception may be made for financial institutions, for deducting tax on purchase of properties in such cases, so that they are not worse off,” said Vikas Vasal, National Managing Partner-Tax Told Grant Thornton India,
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