Summary: CBDT notified Notification No. 23/2025 dt 28 March, 2025 amending Form 3CD under the Income-tax Rules, 1962, with changes applicable from 1 April 2025 and therefore relevant to FY 2025-26. The amendments include reporting changes under Clauses 12, 19, 21, 22, 26, 31, 36B and 44. Clause 12 includes Section 44BBC, relating to presumptive taxation for non-residents engaged in the operation of cruise ships, while Section 44BBD is referred to under another relevant section for non-residents providing specified services or technology for electronics manufacturing. Clause 19 omits Sections 32AC, 32AD, 35AC and 35CCB. Clause 21 introduces disclosure of expenditure incurred to settle proceedings for contraventions under laws notified by the Central Government. Clause 22 strengthens reporting concerning amounts payable to Micro or Small Enterprises, including interest inadmissible under Section 23 of the MSMED Act, 2006. Clause 26 addresses amounts covered by Section 43B(h) concerning delayed payments to Micro or Small Enterprises beyond the period prescribed under Section 15 of the MSMED Act, 2006. Clause 31 expands reporting concerning loans, deposits and repayments under Sections 269SS and 269T through transaction codes. Clause 36B introduces reporting of amounts received and cost of acquisition in relation to share buybacks. Clause 44 continues reporting of expenditure based on suppliers’ GST registration status. The article discusses these amendments and their practical implications for businesses, professionals and tax auditors.
- Introduction
- What is Form 3CD?
- Snapshot of Key Form 3CD Changes
- Insertion of New Sections under Clause 12
- Section 44BBC: (Specifically Included)
- Section 44BBD: (covered under Any other Relevant Section)
- Omission of specific Deductions under Clause 19
- New Disclosure for Regulatory Settlements under Clause 21
- Enhanced MSME Disclosures under Clause 22
- Modification in Reporting under Section 43B under Clause 26
- Transaction Code Wise Reporting of Loans, Deposits & Repayments under Clause 31
- Reporting Share Buy- Back Proceeds under Clause 36B
- GST Expenditure Reporting under Clause 44
Introduction
The Central Board of Direct Taxes (CBDT) has notified significant amendments to the Tax Audit Report (Form 3CD) through Notification No. 23/2025 dt 28 March, 2025. These changes are applicable from 1st April, 2025 and therefore the revised reporting requirements apply to FY 2025-26. The revised framework is designed to enhance transparency, streamline tax audit reporting, and ensure stricter compliance with tax laws. Businesses and tax professionals must align their audit procedures with these updates to avoid reporting errors and ensure smooth compliances.
This article provides a comprehensive overview of the amendments, their practical implications, and a tax audit readiness checklist.
What is Form 3CD?
Form 3CD is a key component of the tax audit process mandated under Section 44AB of the Income-tax Act, 1961. It serves as a detailed statement that chartered accountants use to report a taxpayer’s financial and compliance information to the income tax department. Businesses exceeding an annual turnover of INR 1 crore (or INR 10 crore for entities conducting at least 95% of transactions digitally) and professionals with receipts above INR 50 lakhs must file Form 3CD.
The form consists of two parts:
- Part A:Captures basic taxpayer details, including PAN, business nature, and assessment year.
- Part B:Focuses on tax compliance, loans, deductions, TDS/TCS, and financial transactions affecting tax liability.
Snapshot of Key Form 3CD Changes
| Clause | Nature |
|---|---|
| Clause 12 | Inclusion of Section 44BBC and 44BBD |
| Clause 19 | Omission of specific sections |
| Clause 21 | New Disclosure for Regulatory Settlements |
| Clause 22 | Strengthened MSME disclosures |
| Clause 26 | Reporting impact of Section 43B(h) |
| Clause 31 | Expanded reporting of loans, deposits and specified advances |
| Clause 36B | New reporting for share buyback transactions |
| Clause 44 | Continued GST expenditure reporting |
Insertion of New Sections under Clause 12
Section 44BBC: (Specifically Included)
Presumptive Taxation for a Non-Resident engaged in the business of operation of Cruise Ships. (Effective from AY 2025-26)
Presumptive Income is 20% of the specified aggregate amounts.
Section 44BBD: (covered under Any other Relevant Section)
Presumptive Taxation for a Non-Resident providing services or technology in India for setting up an electronics manufacturing facility or in connection with manufacturing/producing electronic goods. (Effective from AY 2026-27)
Presumptive Income is 25% of the specified aggregate amounts.
Omission of specific Deductions under Clause 19
Several deduction-related sections have been removed from Clause 19, simplifying tax audit reporting. The omitted sections include:
- Section 32AC: 15% Investment Deduction for Manufacturing Companies that invest in New Plant and Machinery
- Section 32AD: 15% additional Deduction for Investment in New Plant & Machinery installed in notified Backward Areas of specific states
- Section 35AC: 100% Tax Deduction for Contributions to Approved Social & Economic Welfare Projects
- Section 35CCB: Tax Deduction for payments made towards approved programs for conservation of natural resources or afforestation.
New Disclosure for Regulatory Settlements under Clause 21
A significant addition requires taxpayers to disclose any expenditure incurred to settle legal proceedings initiated for contraventions under laws notified by the Central Government. This enhances transparency in disclosures related to legal settlements and regulatory compliance.
Enhanced MSME Disclosures under Clause 22
Taxpayers must provide detailed reporting on payments made to MSMEs under the MSME Development Act, 2006. The required disclosures include:
- Total outstanding amounts required to be paid to a Micro or Small Enterprise under Section 15.
- Amount of Interest not claimable as a deduction under Section 23 due to delayed payments.
- A clear classification shall be prepared of payments made within and beyond the prescribed period.
Modification in Reporting under Section 43B under Clause 26
With the introduction of Section 43B(h), reporting under this clause also covers amounts payable to Micro or Small Enterprises where payment has not been made within the time prescribed under Section 15 of the MSMED Act, 2006.
Where an amount payable to a Micro or Small Enterprise remains unpaid beyond the prescribed period, the corresponding expenditure is not allowable as a deduction for the relevant previous year under Section 43B(h). Such expenditure becomes allowable in the year in which the payment is actually made.
Note: Payment made on or before the due date of filing the income-tax return does not by itself make the expenditure allowable if the payment was made beyond the time limit prescribed under Section 15 of the MSMED Act.
Transaction Code Wise Reporting of Loans, Deposits & Repayments under Clause 31
The revised reporting framework improves the transparency of reporting under sections 269SS and 269T, particularly in cases involving non-cash settlements, asset/liability transfers, conversion transactions and journal entries. It now requires itemized reporting of each loan or deposit taken/accepted or repaid and mandatory use of transaction codes (from a new dropdown list) to identify the nature of the transaction (e.g., cash, cheque, journal entry, transfer entry, journal entry etc)
Reporting Share Buy- Back Proceeds under Clause 36B
Taxpayers are now required to disclose:
- Whether they received any amount under a buyback arrangement, and if Yes,
- The amount received and the cost of acquisition of shares bought back.
GST Expenditure Reporting under Clause 44
This clause continues to require reporting of expenditure based on the GST registration status of suppliers.
While no significant amendment has been introduced in this clause, it remains one of the key disclosures closely scrutinized during tax audits.
The tax audit changes are not merely incremental adjustments but represent a paradigm shift in tax administration. They signal a clear move away from a system of periodic, manual verification towards one of continuous, automated, and data-driven scrutiny. For businesses, professionals, and auditors, adapting to this new reality requires a proactive and strategic approach.
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