How does ITR Filing help in the Availment of Loans

17 August 2023

3,504 5 mins read

In this article, you will learn about the availing of loans easier for different assessees by providing a step by step understanding of Income Tax Return types and the seven categories the IT department of India recognises.

Filing Income Tax Returns (ITR) is imperative to reap a myriad of nuanced and personal benefits for an individual besides, of course, the obvious feelings of being a dutiful and responsible citizen of the country. The innumerable perks that come along with the filing of an Income Tax Return, as well as the various options of ITRs available, surely do their bit to attract the assessees to mow the yield of a task that takes them only minutes to finish. Income tax documents that one submits to the bank have a very important bearing on the eligibility to secure a home loan for themselves. Lets check How does ITR Filing help in the Availment of loans

Table of Contents

Types of ITRs recognized by the Income Tax Department

Taking a look at the various types of ITR and knowing one’s category is a greatly helpful piece of information. As per one’s eligibility, amount, and source of income, there are seven types of ITR forms, issued by the IT Department. They are the following:

ITR 1: Individuals earning income less than Rs 50 lakhs from salary, pension, or one house property.

ITR 2: Individuals earning more than Rs 50 lakhs from salary, capital gains, more than one house property, foreign income/asset, holding directorship of the company, or share of an unlisted company.

ITR 3: Individuals earning more than Rs 50 lakhs from salary, capital gains, more than one house property, foreign income/asset, business/ partnership firm, holding directorship of the company, or share of an unlisted company.

ITR 4: Every income from ITR 1 along with the presumptive income of more than Rs 50 lakhs.

ITR 5: Applicable only to firms, LLPs, associations, and bodies.

ITR 6: Companies not claiming exemption under Section 11. (Section 11 provides an exemption for income derived from property held under trust, wholly for charitable or religious purposes, to the extent that such income is applied for charitable or religious purposes in India.)

ITR 7: Individuals/ companies under Section 139 (4A), (4B), (4C), (4D).

Availing house loans and the Benefits of filing ITRs On Time

One of the most convenient ways to build and fund one’s house in the age of sky-high property rates is by allowing oneself the assistance of house loans. To avail of these loans, the individual must procure documents that prove his creditworthiness or credibility of prudence in monetary investments/ financial proceedings.

In addition to the basic KYC documents (like a proof of address and/ or other identity proofs) and property documents (like a chain of records and/ or title deeds of the land), one needs to timely procure and submit

tax-related documents on the home loan lender’s demand, such as, majorly, copies of the income tax return (ITR) they have filed over years (last 3 years minimum).
This is also crucial proof of a steady income.

Why should non-salaried applicants too, file an ITR?

Even non-salaried individuals should work on filing an Income tax because producing these documents will help the lender to understand the business, the nature, and extent of existing borrowings, the profitability of the business, and the quantum of one’s own investment. They benefit from not having to pay interest and it ascertains their ability to pay the EMIs well in time. This acts as a credit score tester or borrower’s ability to repay the debt, thus facilitating loans much easier and faster, with both parties assured.

The credibility of the Loan Applicant checked by Lender (Bank)

In a few cases, lenders who are only interested in verifying the applicant’s repayment capacity, accept Form Number 16 as proof of one’s income and do not insist on the income tax return filed by them. Form no. 16 only has the salaries of the individual and the tax deducted from it hence. But in most cases, one needs to furnish the ITRs they’ve filed, at least for the last three years. Some home loan lenders may also ask the borrower to produce their net worth alongside tax documents, which are formed with the expertise of a chartered accountant. Income Tax Return filing could help one with any kind of loan, be it Vehicle (car) Loans, Personal Loans, and the aforementioned House Loans.

Interestingly, the mere filing of income tax returns is also not entirely enough. Even the punctuality with which one has filed the income tax returns has a bearing on thinning or broadening the chances of getting a loan. Condonation of delays and repetitive tax calculation errors and reassessed copies are huge red flags and could alarm the home loan lender. ITRs filed for the first time before the home loan application is undertaken by the borrowing individual party, are also not convincing enough and could look like an effort made for the loan’s sake alone, which again does not fall through a loan lender’s expectations.

Additional Benefits of ITR

Filing Income Tax Returns have more perks than cons. One could, as per the provisions under Sections 234 A and 234 B, save the interest applicable on the payable tax by filing ITR on time. There is no relief on penalty for late filing of an income tax return.

Visas for foreign consulates mostly require ITRs to affirm a person’s credibility and clarity of past records.
One can conveniently elude the price that the delay in filing an ITR comes for, that is, penalties of up to ten thousand rupees, imprisonment, prosecution, and/ or notices issued in their name, by just filing returns on time.
Thereby, ITR filers, in turn, get their loans easily approved by the bank or lenders as it is the best income and eligibility proof. Ones who file their ITRs on time, also get refunds processed quicker than the ones who delay;
they save on tax liability by carrying forward their losses to the subsequent future years, a provision offered to taxpayers according to the Income Tax laws.

Conclusion

A well-furnished ITR would be the one with a stable income. This way banks can rest assured that the borrowing individual has the capacity to repay the loan, allowing for the lender association to project potentially better interest rates. In this day and age, were building a house and starting a family is fairly way tougher than in the 90s, providing all the right ITR documents shall help one not miss out on the best property deals/ home loans/ and rates of interest and home loan tax benefits too, besides, of course, communicating to the lender, the obvious fact that the party is confident in its ability to repay the loan in full or gradually through equated monthly installments.

Also, Read: