Why is ITR necessary for a home loan, and how to file an ITR?

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While applying for a home loan, it is important to know which documents are required and why. These documents help the lender in checking your eligibility and creditworthiness. While applying for a home loan, you need to submit identity proof, address proof, property documents and income documents. Income Tax Return is one of the vital documents required for home loan. However, it could be tricky to file ITR if you are not accustomed to it.
What is ITR?
ITR or Income Tax Return is a mandatory form to be filed by individuals and businesses whose income is above the threshold limit. However, experts opine that it is a good practice to file an Income Tax Return even if the income is below the threshold limit. ITR indicates your taxable income and includes all the information of your income earned through house property, business, interest, sale of properties, etc. in a particular financial year.
Why is ITR necessary?
There are various reasons why lenders ask for ITR. ITR helps ascertain your income and cash flow. ITR is necessary as -
Through an ITR, the lender is able to determine your financial capability. You are required to submit ITR for the last three years for a home loan. It helps the lender ascertain whether you have a stable source of income and if you would be able to pay Equated Monthly Instalments (EMIs) in a timely manner.
With ITR, lenders determine your repayment capacity and credibility. If you have defaulted in ITR filing, they might assume that you would default in home loan EMI payments as well.
How to file ITR?
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-
You must furnish your Income Tax Returns when you apply for home loan. Without ITR, your home loan application might not be approved. If you face difficulty in filling it yourself, you can take the assistance of a professional to ensure that it is filed accurately.
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