Why Filing an ITR is Important to Avail a Home Loan?
In the 1990s and early 2000s, buying a house was considered a necessity. Given the relationship between the average income rates people were earning and the home prices being offered to them at the time, it was not uncommon (quite the contrary) for an individual to be able to purchase a house for themselves using a year or two's worth of salary. Buying a house and starting a family was a fairly simple affair.
With property rates skyrocketing the last two decades, however, it has become a distant dream for many to be able to purchase a house for themselves right out the gates, with many spending their entire careers pooling together and saving enough funds to meet the price of a simple one or two BHK (sometimes smaller) in a tier-one metro city, with tier two and three locales quickly catching up. As a result, individuals began looking for the best home loans, as it was the only way they could own a house.
However, given the disparity between income rates and property prices, people oftentimes require decades to repay the loan, and banks need to ensure that they are confident you can repay the loan, resulting in several terms and documents required for a home loan. One such condition is that you have to file your income tax returns (ITR) to get a home loan and any subsequent home loan tax benefit. But why?
Let’s find out!
What does ITR refer to?
ITR or Income Tax Return is essentially a form you have to fill that depicts the amount you earned in that year, the subsequent tax bracket you fall into, and, therefore, the amount of income tax you have to pay. Generally, 7 such Income Tax forms and bands are provided by the Income Tax Department.
| ITR Band | Conditions |
|---|---|
| ITR 1 | For those earning 50 lakhs or less |
| ITR 2 | For those with income other than from “Profits and Gains from Business or Profession,” including income from capital gains, foreign assets/income, and other sources like legal gambling. |
| ITR 3 | For those earning 50 lakhs or more, including capital gains, rent, company profits, etc. |
| ITR 4 | For those earning ITR 1 + 50 lakhs additional income. |
| ITR 5 | For LLPs, associations, firms, etc |
| ITR 6 | For companies not claiming exemptions under Section 11 of the IT act |
| ITR 7 | For entities that fall under Section 139 (4A), (4B), (4C), (4D). |
Why do you have to file your ITR to get a home loan?
Put, your ITR documents provide proof of your income, allowing banks to assess their risk and set interest rates accordingly. Let’s dive deeper for a better understanding so you can complete the procedure without a hitch and get the best home loans and the additional tax benefit! Some details include
- Your ITR should show that you have a stable income. This way, banks can rest assured that they have the capacity to repay the loan, allowing for potentially better interest rates.
- Income statements for the last three years are required as part of the ITR.
- If your ITR has not been filed, you could miss out on the best home loans and invite legal action from authorities.
- You will often be requested to provide a ‘net worth statement’ along with your ITR; if you own a business, audited financials will also be required.
Conclusion
Filing your ITR is the first and foremost step in ensuring you are eligible for a home loan. Not only is it mandatory by law, but it also allows lenders to assess your repayment capacity. Providing all the right ITR documents will communicate to the lender that you are confident in your ability to repay. If you wish to apply for a home loan, you can choose from the multitude of options available on the Piramal Finance website. Here’s how you can apply.