Form 16 is a certificate issued by an employer to a salaried employee that shows the Tax Deducted at Source (TDS) from the employee’s salary and deposited with the government.
Many people might not know about Form 16. Do we need it for a home loan or any other cases? With this blog post, you will understand all the details related to Form 16.
Importance of Form 16
Form 16 is proof of your income and tax paid to the government. Generally, companies pay tax to the government on your behalf during the financial year. This document can be generated only for salaried employees.
You might have heard the word “TDS” during your selection process from HR. TDS stands for Tax Deducted at Source means companies cut a small part from your salary to pay tax to the government.
Why do many borrowers not have Form 16
There are mainly 3 reasons for not having Form 16.
- Non-taxable: This means the person’s income doesn’t meet the taxable criteria. So Form 16 can’t be generated.
- Recently Joined a New Job: If someone recently joined a job, they also can’t apply for Form 16 because it is generated after one financial year.
- Employer Does Not Deduct TDS: If the employer does not deduct TDS, Form 16 cannot be generated.
Why Do Banks Ask for Form 16?
Generally Banks ask this document for loan purposes. Since this document proves the income source and your income amount, Banks can reverify it with your income documents.
Components of Form 16
There are two parts of Form 16, Part A and Part B. Part A contains your and employer’s basic details like employer’s address, name and TAN number, your PAN number, tax summary, period of service, assessment year and financial year.
On the other hand Part B contains detailed breakup of your salary, allowances and exemptions claimed, deductions under sections such as 80C, 80D, etc, income from other sources (if declared to the employer)taxable income, tax calculation, rebate, cess, and final tax liability.
How Form 16 Helps Lenders Assess Your Income
Basically Form16 is used as a cross verification document by Banks. Credit Teams checks your salary slips, TDS, PF, allowances, income stability records etc. In short, they can predict that the borrower can repay the loan on time or not.
Can You Get a Home Loan Without Form 16?
The Short Answer is “Yes”. Based on my prior experience with HDFC Bank home loans, I’ve handled cases where the borrower was unable to provide Form 16. Despite that, the loans were successfully approved and disbursed after the required assessment and documentation.
Here are some situations where you may not have Form 16.
- New employee
- Employer does not deduct TDS
- Income below taxable limit
- Self-employed individuals
- Freelancers and consultants
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Alternative Documents Accepted Instead of Form 16
A common question that arises is: If Form 16 is not available, what alternative documents can the bank request?
Here is your answer.
Salary Slips
Bank will ask you the latest salary slips ( minimum 6 months). With the help of this record, Bank can assure about your income stability, TDS, PF, ESIC and all.
Bank Statements
In general, you have to submit your bank statement earlier. But Bank can ask your salary account statement again.
Income Tax Returns (ITR)
If you file ITR, it can also help during this situation.
Offer Letter or Appointment Letter
If you recently joined the company, then provide your offer letter or appointment letter to bank. Bank will calculate the yearly TDS amount from that letter.
EPF Statement
In some cases, EPF statement is also asked by bank to assess the credit risk, employment verification, income verification etc.
Form 26AS
In general, bank do not ask this document. But it is a proof of TDS recorded and maintained by Income Tax department.
Documents List for Home Loan for Salaried Employees Without Form 16
- Salary Slip(minimum 3 months)
- Salary account statement ( minimum 6 months)
- KYC document(PAN, Aadhar, Email id, Mobile No)
- Property Documents
- Sale Deed
- Electricity Bill
- Jamabandi
- Naamjaari
- Khajana Receipt
- NEC
- Form50
These are the main documents for a home loan. But it can vary bank to bank.
Eligibility Criteria
Eligibility for a home loan is very simple for a salaried person.
- CIBIL Score: Minimum 700, if your CIBIL Score below 700 then Bank may reject your loan.
- FOIR(Fixed Obligation to Income Ratio): With this tool, bank agents check whether you can take a home loan or not. You can also check it on your own. Banks generally takes 50% FOIR for a borrower. But it can also vary bank to bank.
- FOIR=(Total monthly fixed obligation/ Gross monthly income)*100
- EMI Bounce: If you have done any EMI bounce before applying a home loan then you may face questions regarding that bounce.
Tips to Improve Approval Chances
- Clean Bank Statement: Do not use too much UPI transactions through your salary accounts. Clean bank statement helps to approve loan faster.
- Try to lower EMIs if any exist.
- Try to avoid EMI bounces.
FAQs About Home Loans Without Form 16
Is Form 16 mandatory for a home loan?
No. There are alternative way.
