Navigating Tax Audits in AY 2025-26: A Deep Dive into the Latest Form 3CD Amendments
- CA MANOJ N A
- May 13
- 6 min read
Effective Date: April 1, 2025 (Applicable for Assessment Year 2025-26)
The tax audit landscape in India is set for significant a shift with the Central Board of Direct Taxes (CBDT) notifying crucial amendments to Form 3CD, the detailed statement of particulars required to be furnished along with the tax audit report. Vide Notification No. 23/2025, dated March 28, 2025, the Income-tax (Eighth Amendment) Rules, 2025, have been introduced, bringing forth changes aimed at enhancing transparency, streamlining reporting, and ensuring stricter compliance with tax laws. These amendments will be applicable for tax audit reports filed for the Assessment Year (AY) 2025-26 onwards.
This article provides a comprehensive overview of these latest changes to help taxpayers and tax professionals understand the new requirements and prepare accordingly.
Understanding Form 3CD
Form 3CD is a critical component of the tax audit report furnished under Section 44AB of the Income-tax Act, 1961. It is a comprehensive statement where the tax auditor provides detailed information about the asses
see's business or profession, adherence to various tax provisions, and specific transactions. The accuracy and completeness of Form 3CD are paramount as it aids the Income Tax Department in assessing the correctness of the income tax return filed by the taxpayer.
Key Amendments in Form 3CD for AY 2025-26
The recent amendments introduce new reporting requirements, modify existing clauses, and omit certain redundant ones. Here’s a clause-by-clause breakdown of the significant changes:
Clause 12: Inclusion of Reporting for Section 44BBC
New Requirement: Tax auditors are now required to report whether the assessee has income assessable under the presumptive provisions of Section 44BBC (relating to income from broadcasting, telecasting, or rights associated with sports events for non-residents, or similar income for certain entities).
Implication: This ensures comprehensive reporting of specialized income streams falling under this section, potentially reducing underreporting risks.
Clause 19: Omission of Certain Redundant Deduction Disclosures
Change: Disclosures related to deductions under the following sections, which are largely outdated or no longer applicable, have been omitted:
Section 32AC (Investment in new plant or machinery)
Section 32AD (Investment in notified backward areas)
Section 35AC (Expenditure on eligible projects or schemes)
Section 35CCB (Expenditure for conservation of natural resources/agro-based programs)
Implication: This change streamlines Form 3CD by removing reporting requirements for defunct provisions, simplifying the audit filing process.
Clause 21(a): New Disclosure for Expenditure on Legal/Regulatory Settlements
New Requirement: A significant new reporting requirement has been introduced, mandating the disclosure of any expenditure incurred by the assessee to settle legal proceedings initiated for contraventions under laws notified by the Central Government.
Further Clarification: The CBDT, via Notification No. 38/2025 dated April 23, 2025, has specified laws such as the SEBI Act, 1992, SCRA, 1956, Depositories Act, 1996, and Competition Act, 2002, under which such settlement expenditures would be disallowable and reportable. This is effective from AY 2025-26.
Implication: This enhances transparency concerning expenses related to legal settlements and compliance with regulatory frameworks, particularly focusing on disallowable expenditures.
Clause 22: Enhanced Reporting for MSME Payments (Section 43B(h))
Change: This clause, which already dealt with amounts disallowable under Section 43B, has been significantly enhanced to capture detailed information regarding payments to Micro and Small Enterprises (MSMEs). This aligns with the insertion of Section 43B(h) by the Finance Act, 2023, which disallows expenditure if payment to MSMEs is delayed beyond the statutory timelines prescribed in the MSMED Act, 2006.
Specific Disclosures Required:
Total outstanding amounts payable to Micro and Small Enterprises.
A bifurcation of these amounts into payments made within the prescribed period under Section 15 of the MSMED Act and payments made beyond this period (which would be disallowed under Section 43B(h) for the current year and allowed only in the year of actual payment).
Details of interest disallowed under Section 23 of the MSMED Act due to delayed payments.
Implication: This promotes timely payments to MSMEs and ensures stricter compliance with Section 43B(h), providing clear visibility on such dues and disallowances.
Clause 23 & New Clause 36B: Reporting of Share Buyback Transactions
Amendment to Clause 23: This clause has been amended to specifically require reporting of buyback transactions by companies that are subject to tax under Section 115QA of the Income-tax Act.
Introduction of New Clause 36B: A new clause, 36B, has been inserted to mandate reporting of amounts received by shareholders from the buyback of shares, potentially covering transactions under Section 2(22)(f) (deemed dividend) or providing further details for buybacks.
Information to be Reported (under new Clause 36B):
Whether the assessee (shareholder) received any amount under a buyback arrangement.
The amount received from the buyback.
The cost of acquisition of the shares that were bought back.
Implication: These changes ensure detailed disclosure and scrutiny of tax liabilities arising from share buyback transactions, both from the company's and shareholder's perspectives.
Clause 26: Refinements in Reporting under Section 43B
Change: Modifications have been made to the language and structure of this clause for reporting disallowances under Section 43B. This includes:
Removal of direct references to specific sub-clauses (a) to (g) of Section 43B.
The word "allowed" has been replaced with "allowable" in sub-clause (A).
Clarifications regarding the treatment of liabilities under clause (h) (payments to MSMEs).
Implication: These changes aim for greater clarity and precision in reporting various statutory dues covered under Section 43B.
Omission of Clauses 28 and 29
Change: Clauses 28 and 29 of Form 3CD have been omitted. These clauses previously pertained to certain specific compliance reporting (e.g., old Clause 28 related to TDS/TCS compliance details, and old Clause 29 to particulars of amounts borrowed on hundi repaid otherwise than through an account payee cheque). Some interpretations also linked the omission to reporting requirements concerning deemed income provisions like Section 56(2)(viia) and 56(2)(viib).
Implication: The omission of these clauses aims to simplify the tax audit reporting framework by removing disclosures that may have become redundant or are covered elsewhere.
Clause 31: Enhanced Reporting for Loans, Deposits, and Repayments
Change: This clause now mandates more granular, transaction-wise reporting of each loan or deposit taken or accepted, or repaid.
New Feature: A structured coding system or a drop-down selection feature has been introduced to specify the nature of each transaction (e.g., cash, cheque/DD, electronic clearing, journal entry, asset transfers, etc.).
Implication: This structured approach significantly improves the traceability, accuracy, and auditability of loan and deposit transactions, enabling better scrutiny, especially of cash transactions and related-party dealings.
Clause 34: Clarification on TDS/TCS Compliance
Change: This clause has been amended to require more detailed reporting on transactions where Tax Deducted at Source (TDS) or Tax Collected at Source (TCS) was not deducted/collected due to the assessee furnishing certificates or declarations for nil or lower deduction/collection.
Implication: This aims to curb any potential misuse of nil or lower tax deduction/collection certificates and ensure proper compliance verification.
Impact of the Amendments
These amendments to Form 3CD will have a multi-faceted impact:
For Taxpayers:
Increased Compliance Burden: Businesses will need to maintain more detailed and granular records, especially concerning MSME payments, loan transactions, and buybacks.
System Upgrades: Accounting and ERP systems may need to be updated to capture the newly required information accurately and efficiently.
Enhanced Scrutiny: The detailed disclosures will lead to greater scrutiny from the tax authorities.
For Tax Auditors:
Enhanced Due Diligence: Auditors will need to conduct more thorough checks and validations for the new and modified reporting requirements.
Revised Audit Programs: Audit checklists and procedures must be updated to incorporate these changes.
Greater Responsibility: The onus on auditors to ensure correct and complete reporting has increased.
Actionable Steps for Businesses and Professionals
Familiarization: Thoroughly understand the amendments and their implications for specific business operations.
Record Keeping: Implement robust processes for capturing and maintaining the detailed information required under the revised clauses throughout the financial year 2024-25.
MSME Vendor Management: Ensure accurate identification and classification of MSME vendors and meticulously track payment timelines.
System Review: Assess and upgrade accounting and IT systems to facilitate the new reporting requirements.
Auditor Consultation: Engage with tax auditors early to understand their requirements and ensure a smooth audit process.
Training: Tax professionals and accounting staff should be trained on these new provisions.
Conclusion
The amendments to Form 3CD for AY 2025-26 mark a clear intent from the CBDT to enhance tax transparency, improve compliance, and leverage data for better tax administration. While these changes will increase the compliance responsibilities for businesses and the due diligence for tax auditors, they are a step towards a more robust and accurate tax reporting regime. Proactive preparation and adaptation to these new requirements will be key for all stakeholders to navigate the upcoming tax audit season effectively.
Disclaimer: This article is intended for informational purposes only and does not constitute professional advice. Readers are advised to consult with a qualified tax professional for specific guidance related to their circumstances and to refer to the official notifications and rules issued by the CBDT.
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