ITR Filing for Home Loan: Why It’s Important & Required Documents

A significant milestone is purchasing a home, which is frequently accomplished with the help of a home loan. It is important for borrowers to understand the nitty-gritty of Income Tax Return (ITR) filing as it pertains to home loans in India since the government in this country encourages people to own homes by offering several tax incentives.

Why Is ITR Required for a Home Loan?

When applying for a home loan, lenders want assurance that you can repay the borrowed amount on time. One of the key documents they look for is your Income Tax Return (ITR).

Submitting ITR for a home loan helps banks and financial institutions evaluate your income stability, repayment capacity, and financial discipline. Since ITR reflects your annual income, tax compliance, and earning consistency, it acts as a reliable proof of financial credibility.

Key Reasons Why Lenders Require ITR for Home Loan Approval

• Proof of Income Stability – ITR provides a detailed record of your yearly income, showing lenders that you have a stable source of earnings.
• Assessment of Repayment Capacity – Lenders use ITR to analyze whether your income is sufficient to handle EMIs along with existing financial obligations.
• Verification of Financial Authenticity – ITR ensures your income sources are legitimate and officially recorded, which reduces risk for lenders.
• Stronger Loan Eligibility – Having ITRs for the last 2–3 years enhances your chances of getting a higher loan amount at better terms.

Importance of ITR Filing for Home Loan Applicants

Filing your ITR is not just a statutory obligation but also a critical document when applying for a home loan. Here's why:

• ITRs serve as official proof of your income, helping lenders assess your repayment capacity.
• Regular ITR filing indicates financial discipline, enhancing your credibility with lenders.
• Many financial institutions require ITRs for the past 2-3 years to process home loan applications, especially for self-employed individuals.

How Many Years of ITR Are Needed?

Most lenders in India typically require you to submit 2–3 years of ITR when applying for a home loan. This helps them assess your income consistency, repayment capacity, and financial stability over a longer period rather than relying on just one year’s income.

Submitting 2–3 years of ITR required for a home loan gives lenders confidence that your income is steady and not a one-time spike. It also strengthens your chances of:

• Qualifying for a higher loan amount
• Negotiating better interest rates
• Establishing stronger financial credibility

Tax Benefits Associated with Home Loans

Home loans come with substantial tax benefits under various sections of the Income Tax Act:

• 80C: Allows a deduction of up to INR 1.5 lakh on the principal repayment of the home loan.
• Section 24(b): Permits a deduction of up to INR 2 lakh on the interest paid for a self-occupied property.
• Section 80EE: Provides an additional deduction of up to INR 50,000 on interest paid, applicable to first-time homebuyers, subject to certain conditions.

These deductions can significantly reduce your taxable income, resulting in substantial tax savings.

For instance, if you are in the 30% tax bracket and claim the maximum deduction under Sections 80C and 24(b), you could save up to INR 1.05 lakh in taxes annually.

Utilising a Home Loan Tax Benefit Calculator

To accurately estimate your potential tax savings, you can use a home loan tax benefit calculator. This online tool helps you determine the exact amount to be paid after all eligible tax deductions.

Steps to File ITR for Home Loan Benefits

Proper ITR filing is crucial to claim the tax benefits associated with your home loan. Follow these steps:

Step – 1: Gather Necessary Documents:

• Form 16 (for salaried individuals)
• Interest certificate from your lender
• Loan repayment statement
• Property details

Step – 2: Submit Documents to Employer:

• Salaried employees should provide the necessary documents to their employer to adjust TDS (Tax Deducted at Source) accordingly.

Step – 3: Calculate Deductions:

• Determine the eligible deductions under Sections 80C, 24(b), and 80EE.

Step – 4: File Your ITR:

• Visit the official Income Tax Department website.
• Choose the appropriate ITR form (e.g., ITR-1 for salaried individuals).
• Fill in the required details, including income, deductions, and tax paid.
• Review and submit the form.

Maximising Tax Benefits

To fully leverage the tax benefits on your home loan:

• Stay Informed: Keep abreast of the latest tax laws and amendments related to home loans.
• Maintain Records: Keep all loan-related documents organised for easy reference during ITR filing.
• Consult Professionals: Seek advice from tax consultants to ensure you're maximising your deductions.

Can You Get a Home Loan Without ITR?

Yes, it is possible to get a home loan without ITR, though it may be more challenging. Lenders typically rely on ITR as proof of stable income and repayment capacity, but there are exceptions. If you do not have income tax returns, you can strengthen your application with alternative documentation, a strong financial profile, and the right strategy.

1. Utilize Alternative Documentation

If you cannot provide ITR, other financial records can support your repayment ability:

• Bank Statements – Regular deposits and healthy balances can indicate steady income.
• Salary Slips and Employment Proof – For salaried applicants, pay slips and appointment letters show income stability.
• Business Financials (for self-employed) – Balance sheets, profit and loss accounts, or GST returns can substitute for ITR.
• Rental Income or Other Earnings – Rent agreements or income from investments can be shown as valid sources.
• Property Valuation and Collateral – The value of the property you mortgage can strengthen the lender’s confidence.

2. Strong Financial Profile

Even without ITR, a solid financial background improves approval chances:

• Good Credit Score – A high CIBIL score reflects repayment discipline.
• High Savings – Strong savings and investments highlight financial stability.
• Low Debt-to-Income Ratio – Lower existing debt makes repayment easier and reduces risk for the lender.

3. Strategies to Consider

Applicants can adopt additional strategies to improve eligibility:

• Applying with a Co-Applicant or Guarantor – A co-borrower with ITR improves creditworthiness.
• Lower Loan-to-Value (LTV) Ratio – Opting for a smaller loan against the property value increases approval chances.
• Specific Loan Programs – Some lenders and NBFCs offer customized schemes for individuals without ITR.

4. Approach

Your interaction with the lender also matters:

• Choose the Right Lender – Some private banks, NBFCs, and housing finance companies are more flexible than others.
• Be Transparent – Sharing complete and honest financial details builds lender trust.

Alternative Proofs If You Don’t Have ITR (or Filed None)

If you have not filed your income tax returns, you can still strengthen your chances of getting a home loan without ITR by presenting other proofs of income and financial stability. Lenders need assurance of your repayment capacity, and the right set of documents can serve as alternatives to ITR for a home loan.

1. Demonstrate Consistent Income Through Alternative Proofs

• Bank Statements
  Regular deposits in your account over 6–12 months can reflect stable earnings.
• Salary Slips/Employment Letter
  For salaried individuals, pay slips or an employer’s confirmation letter can serve as valid proof of income.
• Rent Receipts/Utility Bills
  Rental income or consistent bill payments can help establish financial discipline and cash flow.
• GST Certificates/Turnover Records/Invoices
  Self-employed individuals can present GST filings, turnover statements, or invoices as proof of business income.

2. Enhance Your Financial Profile

• Maintain a Strong Credit Score
  A high credit score demonstrates repayment discipline and reduces lender risk.
• Build a Solid Banking Relationship
  Long-term association with a bank, including savings, deposits, or previous loans, can improve trust and ease loan approval.
• Seek a Co-applicant or Guarantor
  Adding a financially stable co-borrower or guarantor can strengthen eligibility.

3. Explore Alternative Loan Options and Lenders

• Secured Loans
  Offering property or other assets as collateral reduces risk for the lender, making approval more likely.
• Government Schemes
  Subsidized housing finance schemes often have relaxed eligibility, especially for first-time buyers and lower-income groups.
• Peer-to-Peer (P2P) Lending Platforms
  Digital lending platforms may consider alternative documents and provide quicker approvals.
• Specialized Lenders (NBFCs & Fintech Companies)
  Non-banking financial companies and fintechs often design flexible loan products for individuals without ITR.

Also Read: Home Loan: All You Need to Know – Godrej Capital

The Bottom Line

Understanding the nuances of ITR filing for home loans is essential for every borrower. By diligently filing your ITR and claiming the available deductions, you can significantly reduce your tax liability, making your journey to homeownership more affordable.

Embark on your homeownership journey today. Apply for a Loan and take the first step towards owning your dream home.

Moreover, to accurately calculate your EMIs using an EMI calculator. This way you save time and effort on calculations while also being able to plan your finances well!

FAQs

Q.1. Is ITR filing mandatory for a home loan?

A. Yes, you are required to submit ITR for the last 3 years for a home loan. This helps the lender ascertain whether you have a stable source of income and can pay the EMIs timely.

Q.2. Which ITR form is required for home loan?

A. You must file Form ITR-1 Sahaj, which applies if you are a salaried professional repaying a home loan for a self-occupied property. You should also be aware of the home loan tax benefits. These include deductions of up to INR 1.5 lakh on principal repayment, stamp duty and registration charges.

Q.3. How many years of ITR is required for a home loan?

A. Lenders usually require ITRs for the past 2-3 years when processing a home loan application. This includes personal ITRs and business ITRs if you're self-employed. Form 16 and other financial documents may also be needed.

Q.4. What happens if I don't file my ITR?

A. Failing to file your ITR can lead to penalties, loss of tax benefits, difficulty in loan approvals, and legal consequences. In extreme cases, failing to file your return can lead to imprisonment for up to 7 years for willful defaulters.

Q.5. Can I apply for a loan without ITR filing?

A. Yes, lenders like NBFCs, fintech companies, and government schemes offer business loans without requiring ITR.

Disclaimer:

The contents of this article are for information purposes only and not a financial advisory. The information is subject to update, revision, and amendment and may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject Godrej Capital or its Affiliates to any requirements. Godrej Capital or its Affiliates shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any decisions, financial or otherwise based on the contents and information mentioned. For more information, please visit www.godrejcapital.com.