11 APRIL, 2023

As we welcome the new year, it is also time to prepare your tax return by collecting proof of income and expenses. One of the most necessary forms required to file tax is Form 16 for employed people.

Let's read out what Form 16 is used for and the benefits of Form 16 for loan purposes.

What is Form 16? Why do we need it for ITR?

Employees receive a certificate/document from their employers called Form 16 that serves as proof that tax was withheld at the source and lodged with the appropriate government authorities on the employee's behalf.

Use of form 16: You can create and file your income tax return using the information on Form 16. It displays the salary income breakdown and the TDS amount that the company withheld. Both Part A and Part B make up its two halves.

The tax is deducted promptly after the fiscal year, and employers are mandated to disburse it annually on or before June 15 of the succeeding year. You can ask your employer for another Form 16 if you need help finding the original. Form 16 is used to gather a thorough summary of the employee's salary and the TDS amount that was withheld.

The scale of pay that qualifies for form 16:

All salaried people subject to taxation must receive Form 16 from their employers, per the requirements of the Income Tax Act of 1961. This means that anyone who works for someone else and makes more than Rs. 2,50,000 annually must complete Form 16. While completing your tax return, you can ask your present and former employers for this information.

ITR and home loans:

Let us see the use and need of form 16 for a home loan: It's evident that you'll have to invest a sizable sum of money in acquiring your dream house. Securing a home loan in India is the best alternative if you lack the necessary finances. With a house loan, you can get the money you seek and get a specific stretch of time to pay it back.

The financial institution, however, will need documentation to verify your eligibility and creditworthiness for loan approval. Form 16 can come in handy as a supporting document for salary as it gives a clear breakup of your salary and tax liabilities. 

The documentation may also change depending on the lender's requirements and whether the applicant is salaried or self-employed.

What is ITR?

The Income Tax Department receives information about taxpayers' earned income and applicable taxes via the ITR, or Income Tax Return, Form.

Seven different segregation of ITR forms must be completed based on your eligibility and income level.

ITR 1: The ITR 1 Form must be filed by tax-paying individuals and residents having a combined income of up to Rs.50 lakhs.

ITR 2: People who make income other than "Profits and Gains from Business or Profession and the Individuals who are Not Eligible to File the ITR-1 Form" must file the ITR-2. This includes Hindu Undivided Families as well (HUFs).

ITR 3: Individuals and Hindu Undivided Families can file the ITR-3 Form if they have income from a private business or from practising their profession but need to be qualified to file the ITR 1, ITR 2, or ITR 4.

ITR 4: In accordance with Sections 44AD, 44ADA, and Section 44AE of the Income Tax Act, taxpayers who choose the presumed income scheme are qualified to submit an ITR 4 Sugam Form.

ITR 5: ITR 5 Form is used for businesses, limited liability partnerships (LLPs), AOPs and Body of Individuals (BOIs), artificial judicial persons (AJP), cooperative societies, estates of the deceased and the insolvent, business trusts, and investment funds, subject to certain restrictions.

ITR 6: For all businesses that do not claim the exemption under Section 11, there is a tax return form called ITR 6.

ITR 7: The ITR 7 Form is intended for all charitable and religious trusts under Section 139 (4A), political parties under Section 139 (4B), institutes for scientific research under Section 139 (4C), universities, colleges, and institutions, as well as Khadi and village industries under Section 139 (4D).

The significance of ITR for securing Home loans:

Let's see how submitting form 16 for loan purposes is beneficial:

  • The ITR is key document lenders use to determine your income level. Most lenders demand ITR for the last three years to process your house loan application. Your application might only be approved if you present ITR returns.
  • ITR is vital to assess your creditworthiness and ensure that you can make timely EMI payments.
  • In addition to the house loan application, some lenders require borrowers to submit their net worth. In such circumstances, you might require a CA to compile your net worth statement. You must have your financial documents ready with an ITR.
  • Banks require audited financials before assessing your application if you operate a business or are a salaried employee. Your ITR and taxes must have been submitted and paid on time for the Auditor to review your financial records.

What if you do not have an ITR to file when applying for a home loan?

In order to complete the home loan documentation process, information about IT returns is crucial. Several non-banking financial companies and private lenders now offer loans without ITRs too.

It is still essential to consider income in calculating loan amounts, but it is not the only factor. The approval of your house loan application is also based on several variables, including your age, the loan's term, credit score, credit history, and more. As a result, some financial institutions have begun offering home loans in India that might not need an ITR.


ITR is one of the many influencing factors one must look into when applying for a home loan. Ask your lender and be aware if an ITR is necessary for the house loan approval.

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Frequently Asked Questions

Can the full value of the property be taken as a loan?

Only 80% of the property value can be taken as a loan from the bank. The lender evaluates the property’s current price before deciding your loan limit. And based on that, you will get a loan against your property. So don’t approach a bank for a loan against property in a myth that you’ll get 100% value of your property as a loan.

Is There Any Restriction on Loan Again Property utilization?

Banks don’t levy any restrictions on loan usage for borrowers. It means they can use the loan for whatever purpose they want; the lender won’t track its usage. A loan against property is a secured loan in which the borrower pledges the residential and commercial property to get a lump sum amount.

What is the maximum loan given in LAP?

The maximum loan borrowers can get in LAP is 80% of their property’s current price. So do evaluate the same before applying for a loan against your property. This way, you get the idea of what is the maximum loan the bank can offer you in a LAP. And knowing the maximum loan amount helps you manage the finances better for the purpose you are taking the loan.

Can I get a loan against property without a regular job?

Loan against property is available to both salaried and self-employed individuals. So if you don’t have a regular job but earn a handsome income to repay the loan, submit income proof. By submitting income proof, you can assure the bank that you are capable of paying back the borrowed amount even if you don’t have a regular job. For income proof, submit Form 16, bank statements, and income tax returns.

Disclaimer: This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.