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The Central Board of Direct Taxes (CBDT) has notified critical amendments to Form 3CD via Notification G.S.R. 207(E) dated 28th March 2025, bringing sweeping changes effective from 01.04.2025 for Assessment Year 2025-26 onwards. These changes are not mere technical updates—they reflect a broader intent to enhance compliance, increase reporting granularity, and align tax audits with real-time enforcement tools.
Professionals, Taxpayers, and Auditors must now recalibrate their audit procedures and auditing systems to align with these newly mandated disclosures.
Legal Basis
- Notification: G.S.R. 207(E)
- Date of Issue: 28th March 2025
- Authority: Under section 44AB of the Income Tax Act, 1961
- Effective From: 01 April 2025
- Applicable For: AY 2025–26 and onwards
Clause-Wise Analysis of Key Changes in Form 3CD
Clause 12: Addition of New Section 44BBC in Form 3CD
- Old Provision: Earlier, Clause 12 included presumptive taxation disclosures under sections like 44AD, 44ADA, and 44BBB.
- New Change: Section 44BBC has been introduced in Clause 12.
- Impact: Assessees covered under Section 44BBC must now report their presumptive income disclosures in this clause.
Legal Reference: Section 44BBC (Inserted via Finance Act, 2024) applies to income of specified non-resident shipping companies or foreign entities in logistic operations under certain notified conditions.
Clause 19: Omissions of Inoperative Sections
- Provisions Removed: Sub-clauses related to the following deductions have been deleted/omitted from 3CD:
- Section 32AC: Investment in new plant and machinery
- Section 32AD: Investment in backward areas
- Section 35AC: Expenditure on eligible projects/schemes
- Section 35CCB: Expenditure for biodiversity conservation
- Reason: These sections have either expired or become redundant.
Effect: Auditors no longer need to report deductions claimed under these sections.
Clause 21: New Reporting for Settlements under Notified Laws
- Amendment: A new row is inserted to report expenditure incurred to settle proceedings under any law notified by the Government.
For example, if a company settles an ongoing SEBI or FEMA dispute via a one-time settlement scheme notified by the government, such expenditure must now be separately disclosed.
- Objective: Increase transparency and curb the misuse of settlements being claimed as deductible business expenditures without scrutiny.
Clause 22: Fully Substituted – Focus on MSME Act Compliance
This is one of the most significant amendments in Form 3CD, aimed at enforcing the Micro, Small, and Medium Enterprises Development (MSMED) Act, 2006.
Key Insertions:
- Disallowance of Interest under Section 23 of MSMED Act
- Any interest payable due to delayed payments to MSMEs is not allowable as expenditure.
- Mandatory Disclosure of Amounts Payable Beyond Due Date
- Any outstanding dues to MSMEs beyond the time limits under Section 15 must be quantified and disallowed in audit reports.
Legal Implication: Aimed at enforcing timely payments to MSMEs. Auditor must obtain declarations and verify vendor-wise aging analysis.
Clause 26: Changes in Language and Structure
- Old Version: Clause 26 had sub-points (a) to (g) listing various deductions under Chapter VI-A and other provisions.
- Updated Version:
- Lettered sub-points have been removed for simplification.
- The word “allowed” is replaced with “allowable”, emphasizing that the auditor is required to report what should be allowed, not just what is claimed.
Effect: Auditors must exercise greater due diligence and independent verification before certifying the allowability of deductions.
Clause 31: Dropdown-Based Codes Introduced for Reporting Loans & Deposits in Form 3CD
New Nature Codes (Note 1 Inserted):
A total of 12 standardised codes have been introduced to classify the mode and nature of transaction such as:
Code | Description |
A | Cash – Loan Taken |
B | Cash – Loan Repaid |
C | Account Payee Cheque |
D | Account Payee DD |
E | Transfer of Asset |
F | Transfer through Journal |
G | NEFT/RTGS |
H | UPI or Electronic Mode |
I | Journal Entry – Loan |
J | Journal Entry – Repayment |
K | Through NBFC |
L | Others (Specify) |
Auditors must ensure the correct nature code is selected and reported for each loan, deposit, and repayment, ensuring uniformity and traceability.
Clause 36B: Reporting of Buyback of Shares u/s 2(22)(iv)
- New Clause Inserted in Form 3CD to report the buyback of shares, a crucial area prone to tax avoidance under disguised capital return strategies.
Required Disclosures:
- Amount received on buyback of shares
- Cost of acquisition of such shares
Provision: Under Section 2(22)(iv), certain distributions by companies (like buybacks) can be deemed dividends and taxed accordingly. This clause ensures auditors report such cases proactively.
Practical Implications for Tax Professionals and Taxpayers
Area | Impact |
Increased disallowance risk under Clause 22 | |
Loan & Deposit Reporting | Standardized disclosures reduce ambiguity |
Settlements | Expenditures under notified law settlements scrutinized |
Buybacks | Risk flagged under deemed dividend provisions |
Audit Documentation | Must be strengthened for 44BBC and updated clauses |
Conclusion
The CBDT has undeniably raised the bar for tax audit disclosures by amending Form 3CD effective from 1st April 2025, ensuring deeper scrutiny into financial activities, MSME payments, and compliance with evolving tax norms. Audit professionals must update their checklists, templates, Questionnaires and client disclosures to reflect these mandatory changes.
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