What Is Income Tax Return, How to File It, and Why Is It Necessary for a Housing Loan_Banner_WC
What Is Income Tax Return, How to File It, and Why Is It Necessary for a Housing Loan_WC
Property prices are peaking every month and it has become nearly impossible for borrowers to buy a home without seeking external financial assistance. If like millions of others, your savings aren’t enough to cover the entire cost of the property you wish to buy, taking a Home Loan is an excellent way to fund your property purchase. Home Loans are low-interest and long-tenor loans that are easy to repay. The popularity of Home Loans has only increased considerably over the recent past and therefore, more and more people are applying for housing loans to help them fund their property purchase. Unfortunately, not everyone who applies for a Home Loan gets approved for one, only those who meet a lender’s qualifying criteria get a Home Loan. The qualifying criteria revolve around several parameters, such as age, income, credit score, etc. To assess an applicant’s repayment capacity, borrowers ask for several documents, such as KYC documents, salary slips, profit and loss statements, etc. One of the documents that all lenders ask Home Loan applicants to submit is the ITR. ITR refers to Income Tax returns.
In this article, we answer questions such as what ITR is, how to file an ITR and is ITR mandatory for Home Loans.
What is Income Tax Return ( ITR)?
Every citizen of India whose income exceeds a certain threshold must pay an income tax return. The government of India earns money through tax returns and uses this money to provide basic facilities to the citizens of the country. The tax liability of a borrower for a given year is calculated based on their income. Taxpayers can use an income tax calculator to calculate their tax liability for a given year at the beginning of the year itself. Based on their tax liability, they can invest in tax-saving instruments to save on taxes.
The income tax return must be filed before a specified date. If you have submitted more tax than is due, the Income Tax Department will go through your documents and process an income tax refund.
Is ITR Mandatory for Home Loans and Why Is It So Important?
If you are applying for a Home Loan online, know that your lender will ask you to submit several documents and one of these documents would be your income tax returns. If you do not have your income tax return, your lender may reject your loan application altogether. So, why is ITR mandatory for Home Loans?
To start with, your ITR reflects your financial standing. Lenders want to lend money to low-risk borrowers, i.e., people who can repay the loan money on time. When borrowers default on loan repayment, lenders lose money. Further, they also go through a lot of legal hassle. Lenders, therefore, want to make sure they are lending money only to those borrowers who can afford to repay their loans. The ITR indicates a borrower’s financial standing and creditworthiness – it helps the lender decide the risk involved for them in lending money to the Home Loan applicant. Further, lenders also decide the loan amount to be sanctioned to a Home Loan applicant based on their ITR. The ITR gives lenders an idea of a borrower’s income and therefore, the EMIs they can afford. From a borrower’s perspective alone, the ITR is important as one cannot claim Home Loan tax benefits which can help one save big on taxes each year without the help of the ITR. In simple words, the ITR is important because it safeguards the interest as well as the financial health of both the lender as well as the borrower.
How to File an ITR for Home Loan?
If you are planning to apply for a Home Loan, know that you will need your income tax return. So, make sure you have it with you. How to file an ITR for Home Loan? If you do not have your income tax return, here’s how to file an ITR for Home Loan.
- Go to incometaxindia.gov.in and access the e-filing portal to file your ITR online.
- During the next step, you will be required to enter personal details, such as your name, Aadhar, etc. After this, the ITR form will require you to disclose details related to your salary or profits from the business, the income you are drawing from your various investments, etc.
- After this, you will be required to mention all deductions applicable under the Income Tax Act, 1961. It is during this step that you can claim Home Loan tax benefits mentioned under Section 80C and Section 24(b) of the Income Tax Act. After this, the income tax deductions will be subtracted from your gross total income to calculate your tax liability for the year.
- During the next step, you will be required to share your bank details. In case, your tax liability is higher than the taxes you have already paid during the year, make the required payment. In case you have paid more than is due, the Income Tax Department will refund the extra money into your account.
Also Read: Know the Right Process to File Your Income Tax Returns
What Happens If a Borrower Does Not Have Their ITR?
The ITR is a very important document that you will need during the Home Loan verification process. We have already discussed how to file ITR online but what happens when a borrower does not have ITR returns? Is ITR mandatory for Home Loans? If you do not have your ITR return, your loan application will likely get rejected. However, if your bank has known you for a long time and knows your financial health and standing well, they may be willing to offer you a loan even without an ITR. However, the scrutiny will be much higher in this case and you may be required to provide some extra documents to establish your income and credibility for the loan you wish to borrow.
When it comes to Home Loans, the ITR is an important document. Availing of a loan in the absence of ITR is especially difficult. Therefore, borrowers planning to apply for a Home Loan must use an income tax calculator at the start of the financial year to understand their tax liability and invest in tax-saving instruments accordingly. They must also necessarily file their ITR to make it easier for them to get approved for a loan.
What Is Income Tax Return, How to File It, and Why Is It Necessary for a Housing Loan?_RAC_WC