Important Points For Salaried Persons For Availing Bank Loan

CA Bhargav Bhatt

As we are already in the mid of the financial Year of 2018-19, most of the employees get busy with their income-tax planning, increment calculation etc but if they are wishing to avail Home Loan, Personal Loan or any other loan from Financial Institutions and are NOT regular in filing Income Tax Returns, then they are surely missing out some of the important compliances. This article is an effort to explain the importance of documents for SALARIED Persons who are desirous of taking Bank Loan in near future and have not filed previous 2 years’ Income Tax Returns.

General Documents requirement for availing Bank Loan:-

1 Proof of Identity (KYC Norms)

2 Proof of Address of Residence & Employment

3 Proof of Income (Salary & Non-Salary)

4 Property Documents

As this articles focus on documentation of Income Proofs:-

List of Important Financial Documents:-

1. PAN Card

2. Employment Profile

3. Latest 3 Salary Slips where salary/income is credited

4. Bank Statements/Passbook for latest 6 months (1 Year is desirable)

5. Form 16 of 2 Previous Years (3 Years are desirable)

6. Latest 2 Year’s Income-Tax Returns (3 Years are desirable)

Let’s see how Banks scrutinize the above documents and suggestions through which one can improve financial eligibility.

1. PAN CARD

PAN is the basic identity of person from the view-point of Income-Tax & Financial Institutions. Your Credit History is verified from CIBIL {Credit Information Bureau India Limited). CIBIL is linked with PAN. The credit report is given in terms of SCORES. Higher the score, better the eligibility!

The most important thing for improving the Score is to avoid default in any credit card/loan repayment. Even settlement of the same leads to negative scores. It is a myth that holding a credit card gives adverse effect. It is very good to use credit cards with regular payments.

2. EMPLOYMENT PROFILE

It includes Appointment Letters with Package Details, Experience Letters of Current as well as Previous Employers, Education Qualification Certificates, if any etc. It helps the Bankers to determine your qualification, experience and estimate your increased earning capacity.

3. LATEST 3 SALARY SLIPS

Form 16 (point-5) is given only at the completion of Financial Year i.e. 31^st March. So, the Banks generally ask the applicants to provide latest 3 salary slips in order to determine the current status of salary, continuation of job, specific deductions which started for the period after last Form 16 etc. One should plan to avoid any deduction in his/her last 3 salary slips in order to avoid any misapprehension by the bank.

4. BANK STATEMENTS/PASSBOOK:- (Latest 6-12 months)

Bank statements are one of the strongest presenters of your financial stability. Through bank passbook, the Banks verify many factors e.g. regular salary credits, existing loan/credit card installments payments, cheque bounce/return, other recurring savings payouts like LIC premiums, recurring deposits, bank interest income, fixed deposits etc. It is good that in major companies, the salary is directly credited to employees salary bank accounts but in case of smaller companies which pays cheques, the employees should deposit the cheques in one specific bank only in order avoid confusions to bankers. Further where the salaries are paid in cash, the employees should take the best care that they deposit the full amount in the bank account and then start spending from there. As a safe-guard, the employees should ask for salary slips or salary certificates from employers.

5. FORM 16 of 2 Previous Years (3 Years are desirable)

Form 16 is basically a TDS certificate given by employer to employee (even if TDS is deducted or not). But it serves as a greater Income Proof in terms of finances. It provides the income details as per Income-Tax format. One point must be noted for low salaried persons that when they get salary in structures i.e. Basic, DA, HRA, other allowances etc, it is not compulsory to claim every allowance deduction as it reduces your On-Paper Income calculated for the Loan Purpose. For example, suppose your Gross Income is Rs. 2,00,000/- p.a and your allowance deductions come to Rs. 80,000/- p.a. In case, you opt to claim all deductions, then your Income (as per IT Return) will be taken as Rs. 1,20,000/-. But if you don’t claim any deduction, your Income (as per IT Return) will be Rs. 2,00,000/-. The Banks generally calculate your loan eligibility on the basis of your IT Returns and not on your CTC Package.

6. LATEST 2 YEARS’ INCOME-TAX RETURNS:- (3 Years are desirable)

What is the need of giving Income-Tax returns if Form 16 are given? Well, Form 16 compulsorily includes the Income from paid by employer to employee but the employer cannot force the employee to disclose his other incomes like Interest Income, Shares Income, Capital Gains or other Business Incomes etc. But in Income-Tax Returns, every person must disclose all incomes from all sources even if some or all the incomes are exempt. It is important to note that even if Income-Tax gives relief, Banks prefer to insist on Income-Tax Returns. Banks’ guidelines give priority to Income-Tax Assessees and by filing Income-Tax Return and even with Rs. 1 IT payment, your profile can gain weight! Further, after filing IT Returns, an Income-Tax Assessment Order {i.e. Intimation u/s. 143(1)} is received and this adds your strength.

One mistake is generally done by the employees that they are not serious about filing of IT Returns regularly so at the time of taking loan, they are forced to file 2-3 years IT Returns together as per the bank’s requirement. But as per Income-Tax Rules, only 1 year’ IT Returns can be filed so the employees miss their chance of getting benefit of filing 3 years’ IT Returns and lose their “Higher Loan Eligibility Calculation” criteria. Further, the gap between the returns should be more than 6 months and when returns are filed on same day or with a time gap of less than 6 months, they have to face negative remarks in their loan procedure. But in any case, you should file the returns as some banks consider your case on the basis of supplementary documents

So it becomes important to note the Time-Limits to file IT Returns as per Income-Tax:-

Time-Limits to file Income Tax Returns 

(###) After Due Date of Belated Return, the returns cannot be filed by persons except in case where they get notice from Income-Tax Department u/s/ 142(1)

It is worthwhile to note that now Income-Tax department advises to file IT Returns ONLINE through e-filing facility. It helps quick filing of return and faster processing of return. It is easy to e-file your return but it is always advisable to get the same filed through Professionals to avoid any technical issues.

In case of any query, please mail us at cabhargav@gmail.com

Happy e-filing of Income Tax Returns!!!

CA Bhargav Bhatt | 09879305799 | Chartered Accounts | Ahmedabad

(Republished With Amendments)