What is ITR and Why It’s Important for Your Home Loan Approval

For many Indians, owning a home is a big dream in today’s fast-growing place. A home loan can help you fulfill that dream, no matter if you are a freelancer, business, or salaried worker. However, completing a form is not the only step in getting a loan approved. Before granting you any money, lenders thoroughly assess your financial stability, which is where your income tax return, or ITR, is essential.

What is ITR, then, and why is it regarded by banks as one of the most crucial records in the approval process for home loans?

ITR, or Income Tax Return, is a form that individuals and businesses fill out and then submit to the Income Tax Department of India on a yearly basis, for every financial year. This form presents a full record of:

• The income you’ve earned

• The taxes you've paid

• The deductions you've claimed

• The refund you’re eligible for (if any)

To put it simply, an ITR is a formal declaration of your income and tax obligations for a given fiscal year. In addition to being required by law for individuals making more than the exemption threshold, filing an ITR serves as documentation of your earnings, sound financial standing, and tax compliance.

Home loans are long-term commitments that can span 10 to 30 years. Before approving such loans, banks and housing finance companies need to assess your repayment capacity, income stability, and tax discipline. That’s where your ITR comes into play.

Here are key reasons why ITR for home loan matters:

Proof of Legal Income

A government-backed document, ITR is more reliable than informal records or handwritten bills. It presents your declared income, making it clear that you are indeed earning from bona fide sources. This is important to self-employed or freelance workers.

Income Stability

Banks prefer customers who have a stable income history. Submitting ITRs for the last 2–3 years proves that you’ve been consistently earning, which increases trust and improves your chances of getting loan approval.

Higher Loan Eligibility

Your ITR includes gross income and deductions, helping banks determine how much you can safely repay each month. A higher declared income means higher home loan eligibility.

Mandatory for Self-Employed Individuals

If you are not a salaried employee and don’t have Form 16, ITR becomes the primary document to prove your income. Without it, banks will likely reject your loan application.

Reflects Financial Discipline

Timely and accurate income tax return filing shows that you are financially responsible. Lenders see this as a positive sign when reviewing your application.

Aids in Faster Processing

A clean, consistent ITR history speeds up the approval process. It reduces the need for excessive back-and-forth with additional documents like audited financials or profit-loss statements.

A properly filed ITR includes the following key components:

• PAN and personal details

• Income from all sources – salary, business, rent, interest, capital gains

• Deductions claimed – under 80C, 80D, etc.

• Taxes paid – advance tax, self-assessment tax, TDS

• Bank account details for refunds

• Total tax liability/refund status

This makes it a one-stop document that lenders can use to verify your overall financial status—far better than isolated documents like salary slips or bank statements.

When evaluating your home loan application, the bank uses your ITR to calculate your Debt-to-Income (DTI) ratio. This is the percentage of your income that goes toward repaying debts.

For example, if your ITR shows an annual income of ₹12 lakhs, the bank may allow a home loan EMI of ₹30,000–₹40,000 per month, depending on your existing debts.
A higher ITR = higher income on record = higher EMI affordability = higher loan amount approved.

Most banks ask for ITR of the last 2–3 years when applying for a home loan. Some might accept two, but three or more years of consistent income make your case stronger.

It shows:

• Stable income

• Tax compliance

• Financial growth over time

This is especially helpful if your income has increased in recent years, justifying a higher loan amount.

Here are some tips to make your ITR strong and useful for home loan purposes:

• File regularly – Don’t skip years, even if you’re not liable to pay tax.

• Declare all income – Salary, freelance work, rental income, interest—everything.

• Match Form 16 with ITR – Ensure figures align to avoid red flags.

• Claim valid deductions – Use Sections like 80C, 80D to lower tax liability.

• Keep digital and physical copies – Some banks still ask for signed hard copies.

• Consult a CA – Especially if you have multiple income sources or investments.

Your income tax return (ITR) is more than a tax return; it is a record of your track record on income and financial responsibility. If you've properly filed your ITR, it can be a great point of credibility to lenders, whether you are a self-employed professional or someone earning a salary. It is evidence of your legal income and responsible financial management, and it is a primary starting point for establishing value and eligibility for a home loan. In many situations it might be the case that the banks won't even be able to get started without it, especially for large value loans, or if you are self-employed. Therefore, make sure your ITRs are correct, consistent, and submitted on time if you intend to apply for a home loan.