I t return

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

13 January 2014 1 OF MY CLIENT WANTS TO GET HOUSING LOAN OF RS. 7 LAC..SO HOW MUCH TAX SHOULD HE PAY FOR LAST F.Y..??

THANKS IN ADV

CMA Ramesh Krishnan

CMA Ramesh Krishnan (Expert)
Follow

13 January 2014 It is based on your Income and bank credit policy for which you are applying foe the loan

Querist : Anonymous

Querist : Anonymous (Querist)

14 January 2014 BT SIR APPROX WHAT DO U THINK THAT INCOME SHOULD B SHOWN IN IT RETURN TO GET LOAN OF RS. 7 LAC..?? PLS HELP

Upgrade to CAclubindia Pro. Subscribe Now!

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
Follow

28 July 2024 To determine how much income your client should show on their income tax return (ITR) to qualify for a housing loan of ₹7 lakh, and to estimate the related tax liability, several factors come into play. Lenders typically assess a borrower’s eligibility based on income, existing liabilities, and creditworthiness. Here’s a general approach to estimate the income and tax implications:

### **1. Understanding Housing Loan Eligibility**

Banks and financial institutions use various criteria to determine loan eligibility, including:

- **Income Level**: Higher income improves loan eligibility. Typically, lenders look at net income after tax and existing obligations.
- **Debt-to-Income Ratio**: Lenders often consider the ratio of monthly debt payments to monthly income. This ratio varies by lender but is commonly around 40-50%.
- **Credit Score**: A good credit score improves eligibility and terms.

### **2. Income Required for a ₹7 Lakh Loan**

To estimate the income required for a ₹7 lakh loan, consider the following:

- **Loan Tenure and Interest Rate**: Monthly EMI (Equated Monthly Installment) is determined by the loan amount, tenure, and interest rate. Assuming a 7% annual interest rate for a 5-year term:

- Using an EMI calculator, a ₹7 lakh loan at 7% interest for 5 years results in an EMI of approximately ₹13,200.
- For a 10-year tenure, the EMI is around ₹8,500.

- **Income Requirement**: To comfortably handle the EMI, the general rule is that the EMI should not exceed 40-50% of the borrower’s net monthly income. Thus:

- For a 5-year term with an EMI of ₹13,200, a monthly income of around ₹30,000 to ₹33,000 may be required.
- For a 10-year term with an EMI of ₹8,500, a monthly income of around ₹20,000 to ₹25,000 may be sufficient.

### **3. Estimating Tax Liability**

Income tax liability depends on the total taxable income and applicable tax slabs. For simplicity, let’s consider a basic calculation:

**For FY 2023-24 (Assessment Year 2024-25)**

- **Tax Slabs for Individuals Below 60 Years** (Old Regime):

- Income up to ₹2.5 lakh: Nil
- Income from ₹2.5 lakh to ₹5 lakh: 5%
- Income from ₹5 lakh to ₹10 lakh: 10%
- Income above ₹10 lakh: 30%

- **Deductions**:
- **Section 24(b)**: Deduction on home loan interest (up to ₹2 lakh per year).
- **Section 80C**: Deductions for principal repayment, etc. (up to ₹1.5 lakh per year).

**Example Calculation:**

Assume the client has an annual income of ₹4.8 lakh (₹40,000 per month):

1. **Tax Calculation Without Deductions**:
- Income up to ₹2.5 lakh: Nil
- Income from ₹2.5 lakh to ₹5 lakh: ₹2.5 lakh * 5% = ₹12,500
- Total Tax: ₹12,500

2. **Tax Calculation With Deductions**:
- Assuming deductions under Section 80C and Section 24(b) are claimed, the taxable income could be reduced.

### **4. Practical Recommendations**

- **Income Shown**: To comfortably get a loan of ₹7 lakh, the client should ideally show an annual income of at least ₹2.4 to ₹4 lakh, depending on the loan tenure and EMI amount. A higher income improves chances and loan terms.
- **Loan Documentation**: Ensure that all income documentation is accurate and reflects the client’s financial status to facilitate loan approval.
- **Consult a Financial Advisor**: For a detailed assessment tailored to your client’s specific situation, consulting a financial advisor or loan specialist is advisable.

This approach provides a general guideline, but actual requirements can vary based on the lender's policies and other financial factors.