By now, most of us are aware that home loans not only make our dream of buying a home a reality but also grant us ways to reduce our income tax. During the 2023 budget speech, Finance Minister, Nirmala Sitharaman, provided an extension of the deadline for additional deductions on interest payments linked to home loans until 31 March 2024. It is imperative to note that this extension applies to all home loans sanctioned before the end of March 2022.

Under the Income Tax Act, of 1961, home loan borrowers can claim deductions on both the principal repayment (under Section 80C) and the interest paid on the home loan (under Section 24 and Section 80EEA).

Now before we jump straight to the steps to declare home loans for Income Tax Rebate, let us understand where the deductions can be claimed. The below table can help you understand that very easily.

Income Tax Return (ITR) is a mandatory form that individuals and businesses with income exceeding the threshold limit are required to file. Finance experts suggest that even if your income falls below the threshold, filing an ITR is a good practice. It serves as a comprehensive document reflecting your taxable income, encompassing earnings from house property, business, interest, and property transactions within a specific financial year.

The necessity for submitting an ITR when applying for a home loan cannot be overstated. Here are key reasons why lenders demand this document:

Indicators of Financial Stability

ITR acts as a crucial indicator of your financial stability. Lenders typically require the submission of ITR for the last three years when considering your home loan application. It enables them to assess the stability of your income source and your ability to make timely Equated Monthly Instalments (EMIs).

Assessment of Repayment Capacity 

Your repayment capacity is a vital aspect for lenders. By reviewing your ITR, banks assess your creditworthiness based on your net monthly income, factoring in deductions like Provident Fund (PF), Employee State Insurance (ESI), and gratuity. Your ability to cover EMIs and basic expenses influences the loan amount you can qualify for. For instance, with a salary of INR 50,000, you may be eligible for a loan between 58 and 66 lakhs at an 8% interest rate, considering no outstanding loans or EMIs. A history of defaults in ITR filing may lead them to believe you could default on home loan EMI payments as well.

If you are an individual with income less than Rs. 50,00,000, you would need to file ITR-1 also known as Sahaj Form-

Now, let us break down the steps for filing ITR,

Documents Required for ITR for Home Loan

1) Property ownership documents

2) Certificate of purchase or construction

3) Home Loan certificate with interest and principal details

4) Municipal tax receipt

5) Financial and personal documents of the taxpayer

Step 1: Visit the Official Website

Access the official website at incometaxindia.gov.in and use the e-filing portal for ITR submission.

Step 2: Personal Details Entry

Fill in your details, including name, Aadhaar, address, etc.

Step 3: Income Details Inclusion

Enter your income under respective heads such as salaries, and income from other sources (e.g., fixed deposits, investments), with figures cross-checked from your Form 16.

Form No. 16 serves as a valuable tool and is usually issued by the company you are working for. This document helps to give assurance to the bank of the authenticity and continuity of your income. It includes details of tax deducted at source, further validating your financial standing.

Step 4: Deductions Application:

In this step, you need to apply deductions applicable under the Income Tax Act, of 1961 (refer to the above table). Do not forget to include deductions on home loan repayment of both principal and interest.

Step 5: Total Income Computation:

Calculate the Gross Total Income by summing up income from all sources, and subtract deductions to arrive at the total income, which determines your taxes.

Step 6: Bank Details Entry:

Input your bank details for a seamless tax transaction process.

Step 7: Tax Payment, if Required:

Make necessary payments in case of tax liability or additional tax liability not covered by Tax Deducted at Source (TDS) from your employer.

As a prospective homebuyer remember, your home loan approval is closely tied to your ITR therefore It is crucial to submit this document for the last three years to demonstrate your consistent income and enhance your credibility in the eyes of the bank from whom you plan to take a loan.

In conclusion, understanding the significance of ITR for home loan applicants and navigating the filing process with precision are very important steps toward securing your dream home. Make sure you file your ITR diligently and position yourself as a reliable borrower in the eyes of lenders for a hassle-free homebuying experience.