An applicant’s income is a significant home loan eligibility criterion, especially for assessing their ability to repay the home loan EMI. However, different lenders can use different eligibility criteria.
To process the home loan application, lenders often ask for applicants’ Income Tax Returns (ITR) of the last three years – sometimes even more!
What is ITR?
ITR is a document submitted to the Internal Revenue Service or the state tax board by an individual – whose income exceeds the basic exemption limit– to report the following:
- Your income
- Net profit and loss of your business
- Deductions, if any
- Details about tax refund
- Tax liability
So why is ITR important for your home loan application? Read on to find out.
Importance of ITR for a Home Loan Application
Your ITR influences your home loan eligibility. Lenders rely on ITR to check the level and stability of your income, including income from salary, business profits, rental income, earned through dividends, capital gains, and more.
Your ITR documents supplicate the legitimacy of your income sources and subsequently, your ability to repay the home loan EMI amount monthly. Besides, your ITR documents offer proof regarding –
- Your taxpaying history to assess how responsible you are, financially
- Tax exemptions on the home loan interest in income tax return section for an existing home loan, if any
- How often you file your ITRs
- Continuity or increment in income over the years
Furthermore, lenders ask to furnish different ITR documents for different types of employment.
For Salaried Individuals
If you are a salaried individual, lenders can only ask for form no. 16 – a certificate issued for tax deducted at source (TDS) – as income proof. Lenders use it to check the applicant’s continuity of income as well as their repaying ability, at the applicable home loan interest rate.
Lenders prefer if the form no. 16 is issued either by a listed company, a reputed employer, or a government department. However, any irregularity in the salary paid or the tax deducted at source is penalised by the lender – leading to the rejection of your home loan application.
For Non-Salaried Individuals
If you are a non-salaried applicant applying for a home loan, lenders can ask you to furnish ITR documents along with supporting documents, including your business’s balance sheet, profit and loss account, and computation of total income. Lenders use these documents to check –
- The nature of your business
- Profitability of your business
- Nature/terms of an existing loan, if any
- Your saving habits
Moreover, lenders decide the loan amount and the home loan interest rate depending on your business or profession, before approving the home loan.
The Bottom Line
Overall, if you furnish a credible report for your income tax return, home loan approval will be easier. However, eligibility criteria usually differ from lender-to-lender. Remember to use a home loan EMI calculator to estimate EMI payments and compare lenders to score a great deal.