An overview of latest Amendment in Tax Audit Report in Form No. 3CD
On April 1 2025 CBDT modified Form 3CD for the AY 2025-26. However, Clauses 22 and 26 are critical because many MSME and small taxpayers fail to maintain the books of account in such a way so as to make the proper reporting. It results in the auditor not receiving such information.
Furthermore, auditors lack a mechanism to verify whether suppliers are MSME or not, reference wise accounts are not maintained, and most transactions are conducted via cell conversations and WhatsApp, thus the assesses have no agreements.
Let us have some other key Amendments to Form 3CD which is Effective for AY 2025–26
- Clause 12 – Inclusion of Section 44BBC
A new presumptive taxation scheme under Section 44BBC has been introduced for non-resident entities operating cruise ships. Clause 12 now requires reporting of income computed under this section, ensuring proper disclosure of such income in the tax audit report.
2. Clause 19 – Omission of Obsolete Deductions
3. Clause 21 – Reporting of Legal Settlement Expenditures
Tax auditors must now report expenditures incurred to settle proceedings initiated under laws notified by the Central Government. This amendment enhances transparency regarding expenses arising from regulatory or legal violations.
So, Expenditure incurred for this purpose, will not allowed to claim deduction.
4. Clause 22 – Enhanced MSME Compliance Reporting
Clause 22 has been revised to require detailed reporting of payments to Micro and Small Enterprises (MSEs), including:
– Total amount payable during the year.
– Amounts paid within the time specified under Section 15 of the MSMED Act.
– Amounts not paid within the specified time and deemed inadmissible under Section 43B(h) of the Income-tax Act
5. Clause 26 – Update on Liabilities Under Section 43B
A new sub-clause (h) has been introduced to Clause 26, aligning with the amendments in Section 43B, which now includes payments to MSMEs. This ensures that delayed payments to MSMEs are appropriately reported and disallowed if not paid within the prescribed time.
6. Clauses 28 and 29 – Omission Related to Share Transactions
7. Clause 31 – Standardization of Loan and Deposit Reporting
The term “specified sum” has been replaced with “loan or deposit,” and a dropdown menu has been introduced for categorizing the nature of such transactions. This enhance clarity in reporting loans and deposits, aligning with Sections 269SS and 269T.
8. Clause 36B – Introduction for Share Buybacks
A new Clause 36B has been added to report details of the amounts received from share buybacks, as referred to in Section 2(22)(f). Taxpayers must furnish:
– The amount received from the buyback.
– The cost of acquisition of the shares bought back.
