ITR Analysis for Loan Underwriting: Reading ITR-3, ITR-5 and ITR-6 Like a Credit Analyst

An income tax return is not a second copy of the audited accounts. It is the audited accounts plus a legally compelled confession of everything the borrower charged to profit but did not pay. ITR-3, ITR-5 and ITR-6 all carry a balance sheet, a P&L and a Schedule BP — and Schedule BP is where the credit findings are.

Key facts

• The forms are not evenly used. Of 7.28 crore returns filed for AY 2024-25 by 31 July 2024, ITR-3 accounted for 91.10 lakh (12.50%) while ITR-5, ITR-6 and ITR-7 together accounted for just 7.48 lakh (1.03%) (PIB, *Record 7.28 crore ITRs filed for AY 2024-25*). That 31 July count is before the audit-case deadline, so the corporate share understates the eventual total — but the ratio holds: most MSME borrowers file ITR-3, not ITR-6.
• Section 43B(h) has no escape clause. Section 43B disallows "any sum payable by the assessee to a micro or small enterprise beyond the time limit specified in section 15 of the Micro, Small and Medium Enterprises Development Act, 2006", and its first proviso — the one that rescues every other 43B item if paid by the return due date — applies to everything "except clause (h)" (Income Tax Department, *Section 43B*).
• YuSight extracts at 95.2% accuracy against a manual benchmark, across all three forms, with every extracted figure carrying a citation back to the page and schedule it came from.
• Audit is the dividing line. Section 44AB requires a tax audit where turnover exceeds ₹1 crore, rising to ₹10 crore where both cash receipts and cash payments are within 5% of their totals, and where professional gross receipts exceed ₹50 lakh (Income Tax Department, *Section 44AB*).
• The statute underneath is changing. "The ITR for income earned during FY 2025-26 will be filed for Assessment Year 2026-27 under the provisions of the Income-tax Act, 1961", while income from 1 April 2026 falls under the Income-tax Act, 2025 (Income Tax Department, *FAQs on Interplay and Transition*).

Which ITR form will your borrower have filed?

The form tells you the borrower's constitution before you open a single schedule — and tells you, immediately, how much financial detail you are going to get.

Form descriptions per the Income Tax Department's ITR downloads page for AY 2026-27.

The practical rule: if you are handed an ITR-4, you have not been given financials. Section 44AD deems income at "eight per cent of the total turnover or gross receipts", or six per cent for banked receipts, for businesses with turnover up to ₹2 crore — ₹3 crore where cash receipts are within 5% of turnover (Income Tax Department, *Section 44AD*). A borrower showing exactly 6% or 8% net profit on an ITR-4 is showing you a formula, not a business. Ask for GST returns, bank statements and a CA-certified P&L instead.

Where do the P&L and balance sheet actually sit inside the return?

Every one of ITR-3, ITR-5 and ITR-6 carries the financial statements in Part A, before the computation schedules begin. The captions are near-identical across the three forms, which is what makes a single spreading template possible.

For how the same figures then get standardised into a spread, see what financial spreading is and the MSME-specific treatment in ITR and Form 26AS spreading for MSME lending.

What is specific to ITR-3, and what does a proprietorship return hide?

ITR-3 is a personal return with a business inside it. That creates three problems and one gift.

The problems. First, Part A-BS is the business balance sheet only — the proprietor's house, personal deposits and personal borrowings sit outside it, while the proprietor's personal liabilities rank equally against the same assets. Second, there is no salary line; what a director would draw as remuneration in an ITR-6 file appears as drawings against the proprietor's capital account, so a proprietorship's reported profit is systematically higher than an economically comparable company's. Deduct a market-rate owner's remuneration before you compute DSCR. Third, the business has no separate legal personality, so a personal guarantee adds nothing you did not already have.

The gift is the rest of the return. Schedule HP shows rental income and the housing loan interest claimed against it, Schedule OS interest and dividends, Schedule CG what was sold during the year, and Schedule IF every partnership firm the borrower is a partner in — which is how you find the group. Schedule AL gives you an assets-and-liabilities statement above the prescribed total-income threshold: a net-worth statement you did not have to ask for. A proprietorship file is a global-cash-flow file whether or not your policy calls it one.

What is specific to ITR-5 for a firm or LLP?

ITR-5 covers partnership firms, LLPs, AOPs and BOIs. Four things differ from a company return.

• Partners' capital is inside Part A-BS, partner by partner in the accompanying schedule. Track the movement year on year: capital withdrawn in the year before an application, then reintroduced as an unsecured loan, is a pattern worth a question.
• Remuneration and interest to partners are deductible only within the section 40(b) limits, and the excess is added back in Schedule BP. That add-back is a genuine cash outflow to the promoters that has been disallowed for tax, so it must still come out of your cash-flow view even though it has been added back for tax.
• An LLP may fall under alternate minimum tax in Schedule AMT/AMTC, which tells you the firm is claiming a deduction large enough to trigger it.
• There is no shareholding schedule. Ownership comes from the partnership deed or the LLP agreement, and the LLP's MCA filings, not from the return.

A firm's ITR-5 also flows through to each partner's ITR-3 via Schedule IF. Reconcile the profit share the firm reports against the share each partner declares. They should agree; when they do not, one of the two returns is not the one that was filed.

What is specific to ITR-6 for a company?

ITR-6 is the richest of the three, and the one where the return should be a mirror of the audited accounts.

• Part A-BS and Part A-P&L must reproduce the audited statements line for line. For an audited company, any difference between the two is either a second set of accounts or a data-entry error. This is the single fastest integrity test available in an Indian credit file, and it takes ten minutes.
• Schedule SH-1 gives the shareholding of an unlisted company, name by name, with percentages — often more current than the last filed MGT-7.
• Schedule AL-1 lists the assets and liabilities of an unlisted company where applicable.
• Schedule MAT and MATC show book profit under section 115JB and MAT credit carried forward. A company that has opted into the concessional regime under section 115BAA is outside MAT, and in exchange has given up several deductions including additional depreciation.
• Part A-OI carries the turnover reported under GST, which is the borrower's own statement of the GST-to-ITR difference — read it before you build your own bridge.

What does Schedule BP actually tell a credit analyst?

Schedule BP starts at profit before tax as per the P&L and ends at business income assessable to tax. Everything in between is a disclosure the borrower was legally obliged to make.

Treat each add-back as a question:

• Section 43B(a) — taxes, duties, cess and fees charged but unpaid. Unpaid GST, PF and ESI. These are statutory creditors ranking ahead of an unsecured lender.
• Section 43B(h) — amounts owed to micro and small suppliers beyond the section 15 MSMED time limit. Because the first proviso does not apply to clause (h), this add-back survives even if the borrower pays before filing the return. It tells you the borrower is funding working capital off its smallest suppliers — the cheapest source of finance available, and the most fragile.
• Section 43B(d)/(e) — interest on borrowings from financial institutions and banks, charged but unpaid. An existing lender is not being serviced in full. This is the single most under-read line in an Indian credit file.
• Section 40(a)(ia) — 30% of expenses where TDS was not deducted or not deposited. Divide by 0.3 to get the underlying expense, then ask who the payee was.
• Section 36(1)(va) — employees' PF contributions deposited after the due date under the relevant welfare Act. Permanently disallowed, not merely deferred. It also means employee money was used as working capital.
• Depreciation, added back and re-allowed under section 32. Covered below.

Why does depreciation in the ITR never match the audited accounts?

Because two different statutes compute it on two different bases, and both are correct.

Section 32 wording per Income Tax Department, *Section 32*.

Three practical points. Use the book depreciation for EBITDA and net worth, because that is the number the balance sheet you are lending against was built on. Use the Schedule DPM written-down values as a second, independent view of the asset base — a block that has shrunk for four years is a business that has stopped reinvesting, whatever the capex narrative says. And read Schedule DCG, where asset disposals surface that the P&L has buried inside other income.

Worked example: reconciling an ITR-6 to audited financials

All figures below are illustrative and constructed to demonstrate the method. They are not client data.

Nandhini Precision Castings Private Limited, Hosur. ITR-6 for AY 2026-27, covering FY 2025-26. Audited P&L:

Now Schedule BP of the same return:

Step 1 — quantify the arrear. The four payment-linked add-backs total ₹68,00,000 + ₹1,12,00,000 + ₹14,40,000 + ₹6,20,000 = ₹2,00,60,000 of expense charged to profit and not paid at the year end.

Step 2 — restate cash earnings.

Step 3 — recompute DSCR. Existing term-loan principal due in the year is ₹2,10,00,000; interest is ₹1,96,00,000; total debt service ₹4,06,00,000.

A file that walks into committee at 1.74 walks out at 1.25 on the strength of one schedule. For the variants of the ratio and when each applies, see DSCR formula: every variant lenders use.

Step 4 — explain the depreciation gap. ₹3,08,00,000 under the Act against ₹2,34,00,000 in the books, a difference of ₹74,00,000. The company commissioned a ₹2,40,00,000 CNC machining line in August 2025 — used for more than 180 days, so it takes additional depreciation at the full rate: ₹2,40,00,000 × 20% = ₹48,00,000, which accounts for most of the difference. The remainder is the ordinary block-rate versus useful-life effect across the older plant. Nothing here is a finding; it becomes one only if you fail to explain it and carry the wrong depreciation into the spread.

Step 5 — the integrity check.

How do you confirm the return you were given is the one that was filed?

A PDF of an ITR is trivially editable. Four checks, in order:

1. Acknowledgement number and filing date on the ITR-V, and whether e-verification is recorded. An unverified return is not a filed return.
2. Return type in Part A-GEN. Original, revised under section 139(5), or updated under section 139(8A). An updated return filed shortly before a loan application is a different document from an original filed on time, and it deserves a question.
3. Schedule TDS against Form 26AS. The return's own claim of tax credit is the borrower's assertion; Form 26AS is the department's record. See Form 26AS analysis for lenders.
4. Turnover against the GST returns. Read the GST turnover the borrower has disclosed in Part A-OI, then build the bridge yourself — the method is set out in three-way triangulation across GST, ITR and bank statements, and the return-level mismatch logic in GSTR-1 vs GSTR-3B for credit assessment.

Where you can, take the return from the source rather than from the borrower — through an account aggregator consent flow or a direct portal download in the borrower's presence.

Does the Income-tax Act, 2025 change any of this?

Yes, and the transition matters for files you are underwriting right now. The Income-tax Act, 2025 comes into force on 1 April 2026, and the 1961 Act "stands repealed on the 01.04.2026" (Income Tax Department, *Objective and scope of the New Act*). The new Act replaces "previous year" and "assessment year" with a single tax year.

For a credit team, the boundary is clean:

So every return in a file assembled today is a 1961 Act return, and the section numbers in this article are the ones printed on it. From the next cycle, section references in your credit policy, covenant definitions and CAM templates will need remapping — 43B, 44AB and 32 all carry different numbers under the 2025 Act. Start that mapping now rather than in the middle of a review season.

How many years should you ask for, and what else?

• Three assessment years of the same form. Two is a comparison; three is a direction.
• The tax audit report in Form 3CA/3CB and 3CD wherever section 44AB applies. Form 3CD lists the auditor's own disallowances, related-party payments under section 40A(2)(b), loans taken or repaid otherwise than by account payee cheque under sections 269SS and 269T, and MSME payment delays. It is more candid than the financial statements it accompanies.
• Form 26AS and the AIS, and the CA's computation of income showing the working behind Schedule BP.
• For a group, every entity's return, not only the borrowing entity's — see multi-entity document mapping.

How does YuSight handle ITR files?

ITRs arrive as portal PDFs, printed and rescanned ITR-Vs, CA-generated computation sheets and occasionally photographs. Document Intelligence classifies each file, identifies the form type, PAN and assessment year off the face of the document, and maps it to the correct borrower entity — which is what separates a group file from a pile.

Financial Spreading then pulls Part A-BS, Part A-P&L, Part A-OI, Schedule BP and Schedule DPM into a standard template across all three form types, builds the book-profit-to-business-income bridge automatically, and flags every 43B and 40(a)(ia) add-back as a separate line in the ratio workings rather than burying it. Extraction runs at 95.2% accuracy against a manual benchmark, every figure is traced to its source page, and every figure stays analyst-editable.

FAQ

Which ITR form applies to which borrower type?

A proprietor files ITR-3, a partnership firm or LLP files ITR-5, and a company files ITR-6. If a proprietor has opted for presumptive taxation you will get ITR-4 instead, which contains almost no financial detail.

How many years of ITR do lenders need?

Three assessment years is the working standard, along with the tax audit report where section 44AB applies. Two years gives you a comparison; three years is what lets you tell a trend from a good year.

What do lenders check inside an ITR?

Part A-BS and Part A-P&L to confirm the audited numbers, then Schedule BP for the add-backs, Part A-OI for unpaid statutory dues, and Schedule DPM for the asset base. The add-backs are usually where the credit findings are.

Can I use an ITR-4 to underwrite a business loan?

Not on its own. Section 44AD deems profit at 6% or 8% of turnover, so the profit figure is arithmetic rather than performance. Ask for GST returns, bank statements and a CA-certified P&L before you size anything.

Why is depreciation different in the ITR and the audited accounts?

Because the Companies Act computes it asset by asset over a useful life while the Income-tax Act computes it on the written-down value of a block of assets at a fixed percentage, with an extra 20% allowance on new plant for manufacturers. Both numbers are right; they answer different questions.

What does a section 43B(h) add-back tell me?

That the borrower is paying its micro and small suppliers late enough to lose the tax deduction. Unlike every other 43B item, paying up before the return due date does not rescue it, so the add-back is a reliable signal that the supply chain is being used as working capital.

Should I spread the ITR or the audited financials?

Spread the audited financials and use the ITR as the control. The ITR tells you whether the audited numbers were the ones filed with the department, and Schedule BP tells you what those numbers left out.

How do I know the ITR PDF I was sent is genuine?

Check the acknowledgement number and e-verification date on the ITR-V, look at whether Part A-GEN says original, revised or updated, and reconcile the Schedule TDS claim against Form 26AS. Where you can, pull the return through a consent flow instead of accepting a file by email.

Does the new Income-tax Act, 2025 affect returns I am reading today?

No. Anything covering FY 2025-26 or earlier is filed under the 1961 Act, so the section numbers stay as they are. It starts to matter for income earned from 1 April 2026, which is when your policy and covenant references will need remapping.

Key takeaways

• The ITR is not a duplicate of the audited accounts. It is the accounts plus a compelled disclosure of what was charged but not paid.
• Form type tells you constitution and, immediately, how much you are going to get. An ITR-4 is not financials.
• Part A-BS and Part A-P&L should reproduce the audited statements exactly for an audited borrower. Ten minutes of caption matching is the cheapest integrity test in an Indian file.
• Schedule BP is the credit page. 43B, 43B(h), 40(a)(ia) and 36(1)(va) between them name every creditor the borrower deferred.
• Deduct the unpaid arrear from EBITDA before you compute DSCR. In the worked example it moved the ratio from 1.74 to 1.25.
• Book depreciation drives net worth; Schedule DPM drives taxable income. Use each for what it measures, and read the written-down values as a second view of the asset base.
• Returns for FY 2025-26 and earlier remain 1961 Act returns. Plan the section remapping for the Income-tax Act, 2025 before the next review cycle, not during it.

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