ITR and Form 26AS Spreading for MSME Lending

Spread the audited financials, not the ITR. Use the ITR's Schedule BP and Schedule OI to find what the audited P&L netted off — unpaid statutory dues, disallowed expenses, depreciation differences — and use Form 26AS and the AIS to test whether the declared receipts are corroborated by anyone other than the borrower.

Key facts

• YuSight has processed 1 Mn documents, which is the scale at which ITR schedule layouts, 26AS part numbering and AIS category codes stop being edge cases and start being handled as classes.
• The MSME population you are underwriting just got wider. RBI's FAQ sets out the current criteria: "a micro enterprise, where the investment in plant and machinery or equipment does not exceed ₹2.5 crore and turnover does not exceed ₹10 crore", "a small enterprise… ₹25 crore… ₹100 crore", and "a medium enterprise… ₹125 crore… ₹500 crore" (RBI, *FAQs on Micro, Small and Medium Enterprises*, 30 July 2025). Those limits were the ones announced in Budget 2025-26 (PIB).
• 26AS is now a narrower document than most credit policies assume. "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 moved to the AIS.
• Collateral-free lending makes the document work load-bearing. RBI: "banks are mandated not to accept collateral security in the case of loans upto Rs 10 lakh extended to units in the MSE sector," and "A composite loan limit of Rs.1 crore can be sanctioned by banks… through Single Window" (same FAQ). Where there is no security, the reconciliation is the underwriting.
• Audit is the gate that decides which documents exist at all. Section 44AB requires accounts to be audited above prescribed turnover thresholds, with the report furnished in Forms 3CA/3CB and 3CD (Income Tax Department, *Section 44AB*).

Which ITR form will the borrower have filed?

The form tells you the constitution before you read a single figure, and the constitution tells you which schedules to open.

The practical rule: a presumptive filer has told you nothing about their balance sheet. An ITR-4 borrower declaring 8% (or 6% on digital receipts) has declared a statutory percentage, not a measured profit. If a ₹2 crore MSME loan is being supported by an ITR-4 and no audited accounts, the financial analysis rests on GST returns, bank statements and the bureau — and the credit note should say so.

Which schedules actually matter?

Not the whole return. For a spread, six schedules carry almost all the value.

Two of these repay attention far beyond their length.

Part A-OI, the 43B block. Section 43B allows certain expenses only in the year they are actually paid — GST and other statutory dues, provident fund and ESI, and interest to banks, financial institutions and NBFCs. The return therefore forces the borrower to declare, in a single row, what they charged to the P&L and did not pay. Unpaid interest to a bank sitting in a 43B disallowance is a lender-facing default disclosed on a tax form. It will not appear anywhere in a CMA summary.

Schedule BP, the section 40(a) row. Amounts disallowed because TDS was not deducted or not deposited. A large 40(a)(ia) figure means the borrower is running a TDS default of its own — the same governance signal as a GSTR-1 to GSTR-3B gap, in a different tax.

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

Four checks, in order, and they take about four minutes each:

1. Acknowledgement number and filing date on the ITR-V. No acknowledgement, no return.
2. The "return filed under section" field. 139(1) is on time. 139(4) is belated. 139(5) is revised — which means an earlier version exists, and you should ask for it and compare. 139(8A) is an updated return, filed after the fact and usually to add income.
3. Schedule TDS2 against Form 26AS. The TDS the return claims must equal the TDS 26AS shows. A gap either way is a filing error or a fabricated document.
4. Schedule BS against the audited balance sheet, caption by caption. These should agree. Where they do not, the difference is either an ICDS adjustment the borrower can explain in one sentence, or one of the two documents was prepared for a purpose other than truth.

That fourth check is the one that catches the two-sets-of-books MSME, and it is pure arithmetic. It is also the check most often skipped, because it is tedious across three years and three entities — which is exactly the kind of work that belongs in automated financial spreading with each figure traced back to its source page.

What does Form 26AS add that the ITR does not?

Independence. The ITR is the borrower's account of itself. Form 26AS Part I is a ledger of what third parties told the department they paid the borrower, deductor by deductor, with TAN, section and amount.

For an MSME manufacturer or supplier the sections that matter are:

• 194Q — buyers with turnover above the applicability limit deduct 0.1% on purchases from the borrower above ₹50 lakh in the year. Every large customer appears by name.
• 194C — job work and contract receipts.
• 194J — professional or technical service receipts.
• 194-I — rent received. Frequently the first evidence of a property the file does not know about.
• 194N — TDS on large cash withdrawals. A visible measure of cash extraction.

Never gross up a 194Q entry from the TDS figure: at 0.1%, a ₹4,000 rounding error becomes ₹40 lakh of phantom receipts. Read the amount column. Our Form 26AS analysis guide sets out the gross-up traps in full.

And read AIS and TIS alongside it. AIS carries the wider picture — SFT reports, tax payments, demand and refund, other information — while TIS shows "value processed by system" against "value accepted by taxpayer/confirmed by source" (Income Tax Department). Where those two differ, the borrower has disputed a source's report. Ask what and why.

Worked example: Shakti Auto Components Private Limited

Coimbatore auto-component supplier. ITR-6 for AY 2025-26 (FY 2024-25), statutory audit complete, applying for a ₹6 crore working capital enhancement. Turnover ₹42.60 crore and plant and machinery under ₹25 crore — a small enterprise on the current criteria.

Step 1 — the audited P&L, spread

Step 2 — Schedule BP, book profit to taxable income

Step 3 — open the 43B row, because that is the finding

The third line is the one to take to committee. It is a disclosed non-payment to a financial creditor, made on a tax form, in a file where the bureau report may still show the account as standard because the lender has not yet classified it.

Cross-check: the ₹84,00,000 disallowed under 43B must appear on the audited balance sheet as statutory dues and interest payable. If the balance sheet shows ₹31 lakh of such payables against ₹84 lakh disallowed in the return, one of the two documents is wrong. Ask which.

Step 4 — restate DSCR

A 1.59 becomes a 1.31 on one row of one schedule. If the sanction carries a 1.35x DSCR covenant, the covenant was already breached on the day the return was filed. Variant definitions and which one your policy uses are covered in our DSCR formula guide.

Step 5 — reconcile turnover to GST

Every line of that bridge should be nameable. An unexplained residual above roughly 2-3% of turnover is a question, not a rounding. The full method is in our GST return analysis framework.

Step 6 — corroborate receipts against Form 26AS Part I

Each 194Q figure is consistent with 0.1% on the amount above the ₹50 lakh threshold — for Aravind Motors, 0.1% × (18,40,00,000 − 50,00,000) = ₹17,900. The 194C entry is deducted at 2%, correct for a company payee.

16.8% is unremarkable for a supplier whose smaller customers fall below the 194Q threshold. The direction is what matters: 26AS sits below declared revenue. Reversed — 26AS at ₹45 crore against ₹42.60 crore declared — you would be looking at revenue reported to customers but not to the return.

Step 7 — read what nobody volunteered

Step 8 — roll to provisionals

FY 2025-26 has no ITR yet. Nine months to December 2025: provisional revenue ₹34,20,00,000 against GSTR-3B taxable turnover of ₹34,86,00,000 — a gap of ₹66,00,000, which the borrower again attributes to scrap sales. The reconciling item recurs, and that is the test. A bridge whose composition changes every period is not a bridge, it is an explanation invented per period. For 26AS, only Q1-Q3 credits will be visible; Q4 deductor filings often land months later, so date-stamp the download and refresh before sanction.

How to spread ITR and 26AS for an MSME file, step by step

1. Identify the constitution and the form. ITR-3, 5 or 6 gives you a balance sheet; ITR-4 does not.
2. Authenticate the return. Acknowledgement number, filing date, and the section under which it was filed. Ask for the original if the one you hold is revised or updated.
3. Map every document to the right entity. Group borrowers file separately, and a PAN on a cover page is not proof of which company the statement belongs to. This is where multi-entity document mapping earns its keep.
4. Spread the audited financials, not the ITR P&L.
5. Agree Schedule BS and Part A-P&L to the audited statements, caption by caption, for each year.
6. Pull Part A-OI and Schedule BP into the analysis. Break the 43B figure into its components and identify any unpaid interest to a financial creditor. Restate DSCR and the current ratio for the arrear.
7. Bridge turnover to GSTR-1, naming every reconciling item.
8. Tabulate 26AS Part I by section and compare business-receipt sections to declared revenue. Expect 26AS below; escalate if above.
9. Read AIS and TIS for rent, interest, property and SFT entries in both the entity's and the promoters' PANs.
10. Repeat the whole bridge on the provisionals and confirm the reconciling items are the same ones.

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 declared revenue is the cheapest independent check available in an Indian MSME file.

Should I spread the ITR or the audited financials?

The audited financials. The ITR's job is different: it authenticates the audited numbers, and its Schedule BP and Part A-OI disclose things the audited P&L nets away — unpaid statutory dues, disallowed expenses, depreciation differences.

What do lenders check in GST, bank statement and ITR data?

Whether the three tell the same story. GSTR-1 gives you outward supplies, the bank statement gives you collections, and the ITR gives you declared revenue and profit. Any two agreeing while the third disagrees is where the underwriting question lives.

What does a large section 43B figure mean?

That the borrower charged an expense and did not pay it. Split it: unpaid GST and PF are arrears with penalties running; unpaid interest to a bank or NBFC is a lender not being serviced, which usually outranks every ratio in the file.

Can an MSME borrower with only an ITR-4 be underwritten?

Yes, but not on the return. Presumptive income under 44AD is a statutory percentage, not a measured profit, so the analysis has to rest on GST returns, bank statement cash flow and the bureau — and the credit note should say that plainly.

Why does 26AS show less than the declared turnover?

Because most small customers have no deduction obligation. 26AS shows a floor on receipts from TDS-liable payers, never a total. A 15-25% residual on an MSME supplier is normal; the alarming case is 26AS sitting above declared revenue.

What is the difference between AIS and TIS?

AIS is the full transaction-level statement from every reporting source. TIS is its category-wise summary, showing both the value the system processed and the value the taxpayer accepted or the source confirmed. A difference between those two means the borrower disputed something.

Does the ITR balance sheet ever legitimately differ from the audited one?

Yes — ICDS adjustments and reclassifications can create genuine differences, but the borrower should be able to explain each one in a sentence. An unexplained difference in a headline caption like inventory or trade receivables is not a reconciliation issue.

What software analyses GST returns, ITR, Form 26AS and bank statements together for MSME underwriting?

Platforms that combine document classification with spreading rather than extraction alone. The test to apply is whether the output is a set of extracted fields or a completed spread with ratios where every figure opens the source page it came from.

Key takeaways

• Spread the audited financials; use the ITR as the authenticity check and as the disclosure of what the audited P&L netted away.
• Six schedules carry the value: Part A-BS, Part A-P&L, Part A-OI, Schedule BP, Schedule DPM/DOA and Schedule TDS2.
• The 43B row is the highest-yield line in an Indian MSME file. Unpaid interest to a financial creditor disclosed there can move DSCR from 1.59 to 1.31 on its own.
• Form 26AS Part I corroborates receipts independently. Expect it to sit below declared revenue; escalate when it sits above. Never gross up 194Q.
• Read AIS and TIS for the entity and the promoters. Rent, interest, property and SFT entries are how undisclosed assets and liabilities surface.
• Reconcile the provisionals with the same bridge you used on the audited year. The reconciling items should recur; if they change every period, the explanation is being invented.

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