Buying a house requires a substantial financial investment. Most people cannot take on such a burden solely on their savings, which is why they apply for home loan plans. Now, lenders have certain prerequisites based on which loan applications are approved. To make sure your loan application faces no problems, it is important to get all the required documents in place. Home loan documents include KYC documents, bank statements, Form 26 AS, and so on. Lenders also require documents related to an applicant’s income tax returns.
- What is ITR?
ITR stands for Income Tax Returns, which is a form through which taxpayers file details regarding their earned income as well as tax, which is applicable to the Income Tax Department. There are 7 different types of ITR forms that must be filled as per your eligibility.
ITR 1: Those earning an income of less than Rs 50 lakhs from their salary, pension, or house property.
ITR 2: Those earning more than Rs 50 lakhs from capital gains, salary, property, or holding directorship of a company or share of an unlisted company, foreign income/asset.
ITR 3: Those earning more than Rs 50 lakhs from salary, capital gains, more than one house property, partnership/business firm, foreign asset/income, or holding directorship of a company or share of an unlisted company.
ITR 4: Every income included from ITR 1 along with presumptive income exceeding Rs 50 lakhs.
ITR 5: Only for firms, LLPs, associations, and bodies.
ITR 6: Those companies who do not claim an exemption under Section 11 (Section 11 mentions an exemption for income that is derived from property, which is held under trust. This income is wholly for charitable or religious purposes).
ITR 7: Those companies or individuals under Section 139 (4A), (4B), (4C), and (4D).
- Importance of ITR
ITR is a vital document that any lender reviews to evaluate a borrower’s level of income. Most financial institutions require income tax returns of the last 3 years to process loan applications. Without ITR, the lender might not accept the loan application. The reason for this is that it gives the lender an idea about your creditworthiness, thus helping them decide on whether the home loan EMI payments would get cleared on time.
There are lenders who also want to know about your net worth along with the home loan application. In this case, a chartered accountant would be needed to prepare the net worth statement. For this statement, an ITR is a must-have document without which you would be unable to get the financial documents required for home loan ready. If you are a salaried employee or own a business, financial institutions will require audited documents before they process the home loan application. Make sure to file ITR and pay taxes on time to have your finances audited by the auditor.
- Submitting ITR if you are non-salaried
In this case, the financial institution will ask you to submit ITR along with documents such as the profit and loss account and balance sheet of the business as well as computation of total income. With these documents, the lender will get an understanding of the business’s existing borrowings, profitability, and investment. Based on the nature of the business, the financial institution will then make a decision about the income for approving the home loan.
Before applying for a housing loan, always examine your ITR record. It is best to be punctual while filing your ITR, as this can influence the loan approval.
