In addition to your basic KYC documents (like your proof of address and identity) and property documents (like chain of documents and title deeds of the land), the home loan lender asks you to submit your income tax documents, such as copies of your income tax returns (ITR).
Form No 16 for salaried individuals
Even though it is mandatory for every individual, whose gross salary exceeds the basic exemption limit, to file his income tax return under the Indian income tax laws, not all salaried employees do so. Lenders who are only interested in verifying the applicant’s repayment capacity, accept Form No 16 as proof of one’s income and do not insist on your income tax return.
Form No 16 has details of the salary paid and tax deducted from it. From Form No 16, the lender comes to know about your employer. If the Form No 16 is issued by a listed company or a government department or any reputed employer, it gives the lender an assurance about the genuineness of the home loan applicant’s salary and continuity of income. Form No 16 also has details of tax deducted at source (TDS). Based on the frequency of tax deduction, which is evident from Form No 16, the lender can derive comfort about the salary being genuine. The quantum of TDS and other deductions towards provident fund contribution, etc., establish you gross emoluments.
If the tax deducted at source (TDS) is not regular or if the salary is also not paid regularly, it may raise doubts over the genuineness of the salary, unless the income is evidenced by concrete savings, like investments in shares, mutual funds, bank deposits, etc. Form No 16 also has the details of the items, against which you have claimed tax benefits under Section 80C. If there is sufficient income but investments under Section 80C are not fully made, the lender may infer that you have liabilities that are not reflected in the income tax return or you have an extravagant lifestyle. This, in turn, may impact your home loan eligibility. It also has details about deduction allowed to you by the employer, with respect to any home loan being serviced, which will be helpful to the lender in determining your overall eligibility.
Non-salaried people have to submit income tax returns
If you are not a salaried person, the lender will insist that you submit your income tax return, along with supporting documents, like computation of total income, profit and loss account and balance sheet of your business. These documents, will help the lender to understand your business, the nature and extent of existing borrowings, profitability of the business and quantum of own investment. These documents, will also help the lender to understand your saving habits.
Based on the nature of your business or profession, the lender will decide the income multiple for granting your home loan. For chartered accountants and doctors, some foreign banks provide home loans, as a multiple of your gross receipt and not the net profit shown in the profit and loss account. For businessmen, it is generally a multiple of your net profit, which determines your loan eligibility. The amount of depreciation claimed can be found from the income tax papers, which is added to your income and considered for determining your loan eligibility.
Even the punctuality with which you file your income tax returns, has a bearing on your chances of getting a loan. If the ITR is filed for the first time, the lender may feel that it has been filed, only for the purpose of making the home application. For example if one ITR is filed during the month of March and the other is filed in April or May, it may create some doubt in the mind of the lender that the ITRs have merely been filed to obtain the home loan.
(The author is a tax and investment expert, with 35 years’ experience)