Income Tax Audit New Rules: What’s New in Form 3CD for AY 2025-26?

Summary: The Income Tax Department has updated Form 3CD for Assessment Year 2025-26, introducing five key changes to the tax audit report. Businesses are now required to provide a more detailed breakdown of payments to Micro and Small Enterprises (MSMEs) under Clauses 22 and 26, including the total payable amount and a split between timely and delayed payments. This aims to enforce Section 43B(h) and may lead to duplicate reporting. A new Clause 36B has been added to address the buyback of shares, which is now treated as a dividend. This requires reporting the buyback amount and the original acquisition cost. Clause 37 now mandates the separate reporting and disallowance of expenses related to settling regulatory violations, such as those under the SEBI Act. Clause 31 introduces a coded format (A to L) for reporting loans, deposits, and advances, including journal entries, which were previously not required to be reported separately. Finally, Clause 12 has been updated to include a new presumptive income section, 44BBC, for non-resident cruise ship operators in India. These changes align with recent amendments to the Income Tax Act, increasing the compliance burden for businesses. Let’s understand these top 5 changes in simple language:

1. Related Payments to MSME Entities – Clause 22 & 26

Detailed reporting of payments made to MSMEs (Micro & Small Enterprises) has now become mandatory in Form 3CD.

Clause 22 – What’s New?
Now you need to provide not only details of interest on delayed payments, but also:

• The total amount payable to the MSME must be disclosed.

• A breakdown of how much payment was made on time and how much was delayed must also be provided.

This change is in accordance with Section 23 of the MSME Development Act, which does not allow interest on delayed payments.

Clause 26 – What’s Added?
If any of your expenses were disallowed under Section 43B(h) due to MSME payment delays in previous financial years, then:

• A breakdown of that disallowed amount must also be provided – how much was paid in the current year and how much is still pending.

Note: This change will make compliance stricter, but according to CAs Yogesh Kale and Kalpesh Unadkat, it could create duplicate reporting, as MSME returns are already filed under the Companies Act.

2. Reporting of Buyback of Shares – New Clause 36B

Following the Finance Act 2025, buyback of shares is now treated as a “dividend.” For this reason, a new Clause 36B has been added to Form 3CD.

What must be reported?
If a company has bought back your shares, you will need to report:

• Buyback amount received (how much money was received)

• Cost of acquisition (original cost of shares)

These details must be reported.

3. Law Violation Settlement Expenses – Clause 37

Section 37 (business expenses) no longer allows settlement expenses for violations of certain specific laws.

What will be covered?
If you violated any regulatory law (such as the SEBI Act, Competition Act, SCRA, etc.):

• Paid a settlement amount

• Paid lawyer/professional fees

• Or incurred any other related expenses

This will now require separate reporting under Clause 37 – and this expense will be disallowed. This change is effective from FY 2024-25.

4. Detailed Reporting of Loans, Deposits & Advances – Clause 31

Now, in Clause 31, you will need to report in a coded format related to:

• Loans

• Deposits

• Specified Advances

CBDT has assigned codes A to L, such as:

• A – Cash receipt

• B – Non-account payee instrument

• C – Journal entry

• D – Debit/Credit transfer

and so on.

What used to happen before?
Previously, such transactions were not required to be reported separately – especially book entries (like journal entries). Now, each mode will need to be identified and reported.

5. Presumptive Income under Section 44BBC – Clause 12

A new Section 44BBC has been introduced for non-residents who operate cruise ships in India.

What has changed in Form 3CD?
Clause 12 now also requires mention of presumptive income under Section 44BBC.

This change is primarily relevant to shipping and cruise line operators who operate in India.

Summary – What did you learn?

Final Words:
All these changes are aligned with recent Income Tax Act amendments. However, due to these:

• Compliance load has increased

• Reporting MSME payments can be tricky