Debt-to-income ratio and personal loans: Some important aspects you must be aware of

Whether you want to fund a home renovation project or take a luxury vacation, personal loans have become an easy and convenient way to meet monetary requirements. As a personal loan is usually unsecured in nature, lenders use various parameters to determine loan eligibility. One such crucial parameter is the 'debt-to-income ratio (DTI)'.

The Debt-to-income ratio helps banks and NBFCs understand your creditworthiness. When the DTI is in the ideal range, it indicates good financial health, reducing the risk for lenders. 

Let’s check out the different aspects of the debt-to-income ratio and its applications.

What is debt-to-income ratio?
 

Debt-to-income ratio (DTI) is a financial metric used by banks and NBFCs. The purpose of DTI is to determine an applicant’s ability to manage debt repayments. To calculate DTI, you must divide the total Equated Monthly Instalments (EMIs) by the gross monthly income. The resulting percentage is your debt-to-income ratio.

For example, let's say your total monthly debt is Rs 50,000 and your gross monthly income is Rs 1,00,000.

DTI Ratio = (50,000 / 1,00,000) x 100 = 50%

Also read - Tips to avail of a personal loan despite a low credit score

Importance of debt-to-income-ratio in personal finance
 

Debt-to-income ratio is a crucial financial metric pertaining to the reasons mentioned below -

• Financial health - Debt-to-income ratio serves as an indicator of the applicant’s ability to manage EMIs.
• Eligibility - Debt-to-income ratio helps lenders determine personal loan eligibility. A higher debt-to-income ratio indicates greater debt burden and strain on finances. Whereas lower DTI lowers the risk of default.
• Financial planning - Debt-to-income ratio helps you make informed decisions related to your finances. You are in a better position to ensure timely EMI payments.

Belated, revised, and updated income tax returns
 

• A belated ITR is filed if the taxpayer fails to file the income tax return on or before the original due date. 

• A revised ITR is filed if the original income tax return status is erroneous, i.e. inaccurate.

• An updated ITR can update any or all previous income tax returns filed. However, this can be filed only once for an assessment year. 

Purpose

You can file a belated income tax return if you still need to complete the original ITR filing date. A revised return is filed when you have filed the original ITR on time, but it needs correction. A revised return can also revise a belated return. An updated return can be filed to update any omissions or mistakes in the original, overdue, or revised income tax returns. It can also be filed if none of these returns has been filed.

Timeline

Belated returns can be filed on or before 31st December of the assessment year. The last date for filing a revised return is also 31st December of the assessment year. There is no limit to how many times a belated return can be filed. An updated ITR can be filed after the end of the relevant assessment year but within 24 months of the end of the relevant assessment year.

Also read: https://www.idfcfirst.bank.in/finfirst-blogs/finance/is-tax-refund-amount-taxable

Why you should avoid taking these extensions

While filing a belated return, you cannot carry forward your losses (except loss from house property). A late fee under Section 234F and interest under Sections 234A, 234B, and 234C is levied on belated returns. While filing a revised ITR, you must provide the original return's receipt number and filing date. In an updated return, you cannot file a nil or loss return, or claim or increase the tax refund amount. 

Given these drawbacks, you must – as far as possible – file your income tax return on time and correctly.

Also read: https://www.idfcfirst.bank.in/finfirst-blogs/finance/banking-details-needed-for-filing-taxes

Conclusion

To reduce your tax liability, you can make tax-saving investments through your IDFC FIRST Bank Savings Account. For attractive fixed deposits and direct investment through demat, open your IDFC FIRST Bank Savings Account today!

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.