September 30, 2025, is the deadline for for eligible taxpayers. including certain individuals, to submit their income tax audit reports. Just to give you a quick rundown, only a chartered accountant can complete the tax audit using income tax form 3CA, 3CD, 3CB. However, in March 2025, the Central Board of Direct Taxes (CBDT) announced some changes to Form 3CD, that will apply for FY 2024-25 (AY 2025-26).
Chartered Accountants Kalpesh Unadkat and Yogesh Kale, told ET Wealth Online that besides doing away with some redundant clauses, a few new ones have been inserted and a few others amended.
Top five changes in Tax audit Form 3CD
Here are the top five changes in tax audit forms for AY 2025-26:
1. Payments of MSME entities (clauses 22 and 26):
Chartered Accountant Yogesh Kale points out that there are major changes in how amounts payable to MSME entities are reported.
The significant changes in reporting relating to amounts payable to MSME entities deserve first mention. Clause 22 of Form 3CD now requires reporting of not only interest on delayed payments to MSME entities, which is not an allowable deduction in view of section 23 of the MSMED Act, but also the total amounts due to micro or small enterprises during the relevant year and the breakup of amounts paid and not paid within the due date specified under the said Act.
The tax auditor may now be required to align this reporting with the MSME returns filed under the company law. This would boost compliance requirements under the said law. By amending section 43B(h) to include delayed payments to MSME entities, it has now become part of mainstream reporting which may improve the rigor in the matter of timely payments to MSME entities. Interestingly, the objective could have been achieved by strengthening and closely monitoring the already existing compliance under the company law. The aforesaid changes made in Form 3CD may lead to duplication of efforts.
Moreover, clause 26 of Form 3CD has been amended to include reporting of the breakup of the amount disallowed under section 43B(h) of ITA during the preceding financial year(s), into the amount paid during the year under reporting and the amount remaining unpaid upto the end of the said year.
Chartered Accountant Kalpesh Unadkat says that this change can boost compliance requirements under the said law. Unadkat adds that by amending Section 43B(h) to include delayed payments to MSME entities, it has now become part of mainstream reporting which may improve the rigor in the matter of timely payments to MSME entities.
Kale says: “Interestingly, the objective could have been achieved by strengthening and closely monitoring the already existing compliance under the company law. The aforesaid changes made in Form 3CD may lead to duplication of efforts.”
2. Consideration received for buyback of shares (new clause 36B):
Following the amendment brought in by the Finance Act, 2025 reclassifying buyback of shares as dividend (earlier, the company buying back the shares was liable to pay tax treating the payment as distributed income), a new clause 36B has been inserted to capture the details of buyback, viz. amount received on account of buyback and cost of acquisition of the shares. This reporting is required to be done by the shareholder whose shares have been bought back by the issuing company.
3. Expenditure incurred to settle proceedings under specified laws (clause 37):
Section 37 (residuary deduction section for business expenses) of ITA was amended w.e.f. FY 2024-25 to extend the disallowance to expenditure incurred to settle proceedings initiated in relation to contraventions under the prescribed laws (e.g. SEBI Act, SCRA, Depositories Act, Competition Act).
A new line item has been inserted in clause 21 for reporting such expenditure (which may include even the professional fees and other incidental expenditure incurred in relation to such settlement). Since breach of any law is never treated as a normal incidence of any trade, expenditure in relation thereto is not an allowable expenditure. Presently the reporting to confined to only a few enactments but may be widened in the years to come.
4. Reporting in respect of loans, deposits and specified advances (clause 31):
According to Unadkat, Clause 31 has been amended to provide for coded reporting in respect of loans, deposits and specified advances. CBDT has notified codes A–L covering cash receipt/ payment, non-account payee instruments, transfers, conversions, journal entries, and any other mode by debit/credit. Earlier there was no specific reporting requirement in respect of book adjustments such as journal entries.
5. Presumptive income under Section 44BBC (clause 12):
Kale says Lastly, clause 12 dealing with presumptive income has been amended to add income referred to in the newly inserted section 44BBC dealing with business of operation of cruise ships in the case of non-residents.
These changes not only align the reporting requirements with the recent changes in the ITA but would also provide additional material to the tax department to disallow ineligible expenditure. Greater emphasis on reporting relating to MSME entities augurs well for that segment.
According to Kale, however, practical experience would suggest that not all taxpayers may be geared to capture all information relating to MSME entities in the manner required, which would make the reporting onerous and, at times, inaccurate. The taxpayers could then face tough questions from the tax department and/or ad hoc disallowances.
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