Banks seek ITR access via NSDL to vet borrower info

Lenders have asked the government for access to income tax returns through National Securities Depository (NSDL) to help validate declarations made during loan applications, people familiar with the development told ET. Banks speak of multiple instances when applicants have declared inflated or fake income details with forged documents. That has led to fraud, or financing disproportionate to actual income.

The move comes as RBI has raised concerns over unsecured loans, and last week increased risk weights on unsecured personal loans, credit cards and lending to NBFCs by 25 percentage points. Banks last month sought direct integration with the Income Tax Department, or through NSDL, for online verification of returns, said another official aware of the representation.

Online verification of returns
“At present, there is no mechanism for online validation of income tax returns,” said a bank executive, adding that online validation of income declared in returns is an important aspect in sanctioning credit facilities.

Once integrated, lenders can log on to the reporting portal of the tax department using pre-approved credentials. “In all such cases, borrowers would be mandating banks to access such data,” the person said. He cited a similar mechanism followed by Protean eGov Technologies for online PAN verification.

Lenders say large- and small-value loan customers have previously falsified data for expanding their borrowing limits. Last year, Can Fin Homes detected fake ITRs in 37 accounts at its Bhilwara branch in Rajasthan, after complaints were made.

Another bank executive said banks’ access to the returns would streamline the process. “It will help in the identification of deserving borrowers and faster disbursement of credit,” he said.

More returns
With an increasing number of taxpayers filing returns, banks will benefit from access to the data. Income tax returns filed by individuals almost doubled to 63.7 million in assessment year 2021-22, from 33.6 million in 2013-14.

“During the current fiscal too, 7.41 crore returns have been filed for assessment year 2023-24 till date, including 53 lakh new first-time filers,” said the finance ministry in a statement last month. “This is an indication of the widening of the tax base subsequent to various reform measures put in place by the department.”

In 2020, the Income Tax Department enabled an ITR filing compliance check by scheduled commercial banks. This allowed them to check the IT return filing status of permanent account numbers in bulk mode as part of the exercise to restrict large amounts of cash being withdrawn by persons who had never submitted them.

Under the existing norms, through this mode, lenders get data on PAN, name of the PAN holder (masked), and income tax return filing status for the last three assessment years.