Form 26AS Analysis for Lenders: Using TDS Data to Validate Declared Income

Form 26AS is the Income Tax Department's consolidated tax statement for a PAN. For a lender it does one thing well: it shows who paid the borrower, how much, and under which TDS section — reported by the payer, not the borrower. That makes it the cheapest independent check on declared income you have.

Key facts

• 26AS is a statutory statement, not a convenience download. Rule 114-I requires the Principal Director General or Director General of Income-tax (Systems) to upload information in "Form No. 26AS," covering tax deducted or collected at source, specified financial transactions, payment of taxes, demand and refund, and pending and completed proceedings (Income Tax Department, *Rule 114-I*).
• YuSight carries 100% of figures cited, so a 26AS receipt line in the CAM opens the deductor row on the statement page it came from in one click — which matters when a committee questions a ₹9.6 lakh entry the borrower says is not theirs.
• Its scope narrowed. "From AY 2023-24 onwards, Annual Tax Statement (Form 26AS) available on TRACES portal displays only TDS/TCS related data of the taxpayer" (Income Tax Department, *FAQs on AIS*). Everything else — SFT, foreign remittance, GST turnover — moved to the AIS. A credit policy that still says "obtain 26AS for SFT data" is out of date.
• The population is large and the document is universal. "The total number of ITRs for AY 2024-25 filed till 31st July, 2024 is more than 7.28 crore" (PIB, 2 August 2024). Every one of those filers has a 26AS.
• Cash movement is visible too. Section 194N requires a bank to "deduct an amount equal to two per cent of such sum" on cash payments above "one crore rupees during the previous year," with the threshold dropping to "twenty lakh rupees" for someone who has not filed returns for three consecutive assessment years (Income Tax Department, *Section 194N*).

What does Form 26AS actually contain, part by part?

The statement is organised in numbered parts. The structure has been amended several times as new TDS sections were introduced, so treat the part numbering below as orientation and read the headings on the borrower's actual statement.

Two parts get overlooked and both are useful. Part VII tells you the borrower received a refund, which tells you they filed and were assessed — a small but real corroboration that the ITR you hold was actually filed. Part X matters when the borrower is itself a deductor: TDS default entries mean the borrower collected tax from its own vendors and did not remit it. That is the same signal as a GSTR-1-to-GSTR-3B gap, in a different tax.

How do AIS and TIS differ from Form 26AS?

Source: Income Tax Department, *FAQs on AIS*.

For underwriting, the practical consequences are:

• Ask for both. 26AS for a clean, deductor-level TDS ledger; AIS for the SFT layer — large cash deposits, mutual fund and securities transactions, property registrations, credit card spend — which is where undisclosed wealth and undisclosed liabilities surface.
• Read TIS as the borrower's edited version. Where the "value accepted by taxpayer" differs materially from the "value processed by system," the borrower has disputed a source's report. Ask what and why. Sometimes it is a genuine duplicate; sometimes it is an inconvenient entry.
• Do not treat AIS as final. It aggregates third-party reports, and third parties make mistakes. An AIS entry is a question, not a finding.

How do you use TDS entries to corroborate declared receipts?

26AS Part I already carries an "Amount Paid/Credited" column, so the primary method is simply to sum it by section and compare with the corresponding head in the ITR. Grossing up from the TDS figure is a cross-check on that column, useful when it is blank, garbled in a scan, or when you suspect the wrong section was applied.

Rates for AY 2026-27 (Income Tax Department, *TDS Rates*):

Three things break the arithmetic, and an analyst who grosses up mechanically will get them wrong:

1. Section 206AA. Where the payee has not furnished a PAN, tax is deducted at a higher rate. Grossing up such an entry understates receipts badly.
2. 194Q multiplies errors by a thousand. At 0.1%, a ₹4,000 rounding error in the TDS column becomes ₹40 lakh of phantom receipts. Never gross up 194Q — read the amount column.
3. Threshold effects. Payments below the section threshold carry no TDS at all, so the deductor never appears. 26AS shows you a floor on receipts from TDS-liable payers, never a total.

Worked example: declared income against 26AS receipts

M. Rajeshwari, proprietor, civil contracting, Coimbatore. ITR-3 for AY 2025-26 (FY 2024-25). Declared gross business receipts ₹4,86,00,000. Applying for a ₹1.5 crore working capital limit.

Step 1 — tabulate Part I by section

Deduction at 1% on 194C is consistent with an individual/HUF payee, which matches a proprietorship.

Step 2 — compare against the declared head

An 11.4% residual on a contracting proprietorship is unremarkable. It is explained by payers below the section threshold, individual customers with no deduction obligation, and retention money that has been billed but not yet credited by the payer. The direction is right: 26AS receipts sit below declared receipts. If the two had been reversed — 26AS showing ₹5.2 crore against ₹4.86 crore declared — you would be looking at income under-declared to the tax authority, an unquantified tax exposure, and a character question that outranks the arithmetic.

Step 3 — read the entries that are not business receipts

None of these four is a finding on its own. Every one is a question that must be answered before sanction:

• The rent is either undisclosed income or a property held in a capacity the borrower has not explained. Either way, the property itself is an asset — and potentially a collateral option — that the file did not know about.
• The NBFC interest implies a fixed deposit that may already be lien-marked against someone else's facility.
• The ₹95 lakh property sale changes the net-worth statement and may explain an otherwise unexplained infusion into the business.
• The 194N entry says ₹1.26 crore left the banking system as cash. In a contracting business, labour payments in cash are ordinary. But it needs to be stated, sized and reconciled against the wage bill, not discovered by an auditor later.

This is why a single-line "26AS obtained and verified" in a credit appraisal memorandum is close to useless. The value is in the sections nobody was looking for.

How do you identify counterparties from the deductor list?

Part I gives a name and a TAN for every payer. That is a customer list the borrower did not curate.

• Concentration. In the example above, the top deductor is 33% of 26AS-visible receipts and the top three are 73%. Compare against the customer concentration the borrower disclosed. Divergence between the two lists is worth more than either list alone.
• Counterparty quality. A municipal corporation and a listed developer are different credit risks as payers. Public-sector payers are slow but certain; small private developers are the opposite.
• New and vanished payers. Pull three years of 26AS side by side. A deductor who contributed 30% of receipts in FY 2023-24 and nothing in FY 2024-25 is either a lost customer or a customer who stopped paying.
• Related parties. Check deductor TANs against the group entities named in the file. Receipts from a promoter-owned company are not third-party revenue.
• Cross-reference with GST. The 26AS deductor list and the GSTR-1 customer list should overlap heavily for a B2B borrower. Where they do not, ask why — our GST return analysis framework sets out how to build the GSTR-1 side of that comparison.

What are the real limits of Form 26AS?

This is the part credit policies get wrong most often.

26AS only sees income on which somebody deducted tax. It is not a bank statement and it is not a turnover record. Specifically, it will not show:

• Receipts from customers with no deduction obligation — individuals, HUFs below the audit threshold, and anyone paying under the section threshold.
• Cash sales. A kirana wholesaler with ₹6.2 crore of declared turnover, selling to hundreds of small retailers who pay in cash and UPI, can have a 26AS containing nothing but ₹31,000 of bank interest under 194A. That is not evidence of overstated income. It is evidence that 26AS is the wrong instrument for that borrower.
• Export receipts. A foreign buyer does not deduct Indian TDS. Exporters look artificially thin in 26AS; use FIRCs and the bank statement instead.
• Exempt income and capital that is not income — a partner's capital withdrawal, a fresh equity infusion, sale proceeds already reported under 194-IA as gross consideration rather than gain.

Timing is a second limit. TDS returns are filed quarterly, so Q4 credits typically appear on 26AS only weeks after the year ends, and a statement downloaded in April will look materially thinner than the same statement downloaded in July. Worse, deductors file revised TDS returns: a 26AS downloaded in May and one downloaded in August for the same year can legitimately differ. Always record the download date on the copy in the file, and refresh before sanction on any file that has been open more than a quarter.

A third limit is scope. Since AY 2023-24 the SFT layer lives in the AIS, not in 26AS. A lender who wants to see ₹10 lakh cash deposits, property registrations or securities transactions must ask for the AIS.

Where 26AS is thin, substitute rather than conclude: bank statement credit analysis, GST returns, and the audited financials together. Projections in the CMA data and the actual drawing power history round out the picture that 26AS alone cannot give.

How YuSight handles Form 26AS

26AS arrives as a password-protected PDF, a text file, or a photograph of a screen, and a group file may carry six of them across promoters, the firm and two associate concerns. YuSight's Document Intelligence classifies each statement, reads the PAN and assessment year off the face of it, and maps it to the right entity in the structure — the failure mode that costs the most time on multi-entity files.

Financial Spreading then builds the deductor-level table, groups it by section, and sets 26AS receipts against the declared income head, with every figure cited to the page and row it came from. The analyst edits what needs editing; the citations survive into the CAM, so a reviewer questioning a receipt line opens the statement rather than trusting a spreadsheet.

FAQ

How does Form 26AS help verify declared income?

It shows what third parties told the tax department they paid the borrower, deductor by deductor. Because the borrower did not write it, matching those receipts against the income declared in the ITR is one of the few independent checks a lender can run for free.

What does a 26AS and ITR mismatch indicate?

It depends which way it runs. 26AS receipts below declared income is normal — plenty of payers have no deduction obligation. 26AS receipts above declared income is serious, because it means income was reported to a payer but not to the return.

Can 26AS reveal undisclosed receipts?

Yes, and it is the most useful thing it does. Rent under 194-I, interest under 194A, a property sale under 194-IA — these show up whether or not the borrower mentioned them, and each one points to an asset or an income stream the file did not know about.

Is Form 26AS still relevant now that AIS exists?

Very. Since AY 2023-24 the 26AS on TRACES carries only TDS and TCS data, which makes it a clean, deductor-level ledger without the noise. Ask for both — 26AS for the TDS trail, AIS for financial transactions.

Why does a cash-heavy borrower show almost nothing in 26AS?

Because nobody deducted tax. A wholesaler selling to hundreds of small retailers has no payer with a deduction obligation, so the statement stays empty no matter how real the turnover is. A thin 26AS is not proof of overstated income.

Can a borrower's 26AS change after I have downloaded it?

Yes. Deductors file revised TDS returns, and Q4 credits often land months after the year ends. Note the download date on the copy in your file and refresh it before sanction if the file has been open a while.

What is the difference between AIS and TIS?

AIS is the full transaction-level statement. TIS is the summary of it, grouped by income category, showing both the value the system processed and the value the taxpayer accepted or the source confirmed. Where those two numbers differ, the borrower has disputed something — ask what.

Does 26AS show cash withdrawals?

It shows the TDS on them. Once cash withdrawals cross ₹1 crore in a year, the bank deducts under section 194N and the entry appears with the amount. For a non-filer the threshold drops to ₹20 lakh, which makes it a sharper signal.

Should a lender ask for 26AS or the AIS?

Both, every time. They cost the borrower nothing to download and they answer different questions — 26AS tells you who paid, AIS tells you what else the borrower did with money.

Key takeaways

• 26AS is the cheapest independent corroboration of declared income available in Indian lending, because the borrower did not author it.
• Since AY 2023-24 it carries TDS and TCS only. SFT and other financial-transaction data moved to the AIS.
• Sum Part I by section and compare against the matching ITR head. 26AS receipts below declared receipts is normal; above is an escalation.
• The most valuable entries are the ones you were not looking for — 194-I rent, 194A interest, 194-IA property sales, 194N cash withdrawals.
• Grossing up TDS is a cross-check, not the primary method, and it fails on 194Q and on 206AA cases.
• 26AS only sees TDS-deducted income. For cash-heavy borrowers and exporters it is close to silent, and its silence proves nothing.

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