CBDT Introduces Key Revisions to the Tax Audit Report (Form 3CD)

Introduction

What is Form 3CD?

Form 3CD is a crucial element of the tax audit process, required under Section 44AB of the Income-tax Act, 1961. This form provides a comprehensive report that chartered accountants use to present a taxpayer’s financial and compliance data to the Income Tax Department. It is mandatory for businesses with an annual turnover exceeding INR 1 crore (or INR 10 crore for entities that conduct at least 95% of their transactions digitally) and for professionals with receipts over INR 50 lakhs to file Form 3CD.

The form is divided into two sections:

Part A: Contains basic taxpayer information, such as PAN, nature of business, and assessment year.
Part B: Focuses on aspects like tax compliance, loans, deductions, TDS/TCS, and financial transactions impacting tax.

What Are the Key Changes in Form 3CD?

The amendments to Form 3CD introduce several changes, ranging from new disclosure requirements to the removal of outdated clauses. Key updates include:

1. Introduction of Clause 44BBC for Income from Broadcasting & Sports Events
A new Clause 44BBC has been added under Clause (12) of Form 3CD. It specifically addresses income from broadcasting, telecasting, or rights related to sports events under Section 44BBC of the Income-tax Act. Taxpayers must now disclose whether their tax audit report includes income under this section, promoting accurate reporting and reducing the risk of underreporting.

2. Removal of Specific Deductions for Simplified Reporting (Clause 19)
Several deduction-related provisions have been removed from Clause (19), simplifying the tax audit process. The omitted sections include:

Section 32AC: Investment Deduction for New Plant and Machinery. This allowed a 15% deduction on investments exceeding INR 1 billion in new machinery, applicable from AY 2014-15 to 2017-18.
Section 32AD: Additional Deduction for Investments in Backward Areas. This granted a 15% deduction for investments in plant and machinery in specific backward areas, aimed at boosting industrial development in regions like Andhra Pradesh, Bihar, Telangana, and West Bengal.
Section 35AC: Deduction for Contributions to Approved Welfare Projects. This allowed a 100% deduction on donations to government-approved projects focusing on education, healthcare, infrastructure, and environmental sustainability.
Section 35CCB: Deduction for Agro-Based Research Programs. This offered tax benefits for contributions to agro-based research, especially those focused on improving agricultural productivity.

3. New Disclosure for Regulatory Settlements (Clause 21)
Taxpayers must now disclose expenses related to settlements for legal contraventions as notified by the government. This includes reporting costs associated with penalty payments.

4. Enhanced MSME Payment Reporting (Clause 22)
Businesses are required to provide more detailed reports regarding payments to MSMEs under the MSME Development Act, 2006. The disclosures should include:

Total outstanding payments under Section 15.
Interest that cannot be claimed as a deduction under Section 23 due to delayed payments.
A clear breakdown of payments made within and beyond the prescribed time frame.

5. Modifications in Clause (26) for Section 43B Deductions
Clause (26) has been updated to improve clarity and precision in reporting deductions under Section 43B, which covers actual payments like taxes, duties, and statutory payments. The revisions ensure clearer reporting of various payment types under this section.

6. Removal of Clauses (28) and (29)
Clauses regarding disclosures on TDS non-compliance (Clause 28) and disallowed payments to partners under Sections 40(b) and 40(ba) (Clause 29) have been removed to streamline reporting requirements.

7. Changes in Loan and Deposit Reporting (Clause 31)
Clause 31 has been revised to enhance the accuracy of reporting loan and deposit transactions. A new drop-down menu allows taxpayers to specify the nature of their transactions, and a structured coding system has been introduced to classify transactions into categories such as:

Cash payments and receipts
Asset transfers
Journal entries and other types of transactions

8. New Reporting Requirement for Buyback of Shares (Clause 36B)
A new Clause 36B has been introduced, requiring taxpayers to report buyback transactions under Section 2(22)(f), including:

The amount received from the buyback.
The cost of acquiring the shares involved in the buyback

Key Takeaways:

New Clause 44BBC: Income from broadcasting and sports events now requires mandatory disclosure.
Regulatory Settlements: Businesses must report expenses related to legal settlements and penalty payments.
Enhanced MSME Reporting: Detailed reporting on payments to MSMEs, including outstanding balances and delayed payments.
Updated Loan & Deposit Reporting: Greater clarity with a structured coding system for loan and deposit transactions.
Buyback of Shares: New requirement to report transactions involving the buyback of shares.
Effective Date: These changes will take effect from April 1, 2025, and businesses must comply with the updated reporting requirements to avoid penalties

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About the Author

Manisha

Manisha is a seasoned content writer with expertise in business registration, tax regulations, trademark laws, and company compliance. His informative articles provide clear, actionable advice, helping businesses navigate and address complex legal and regulatory challenges with ease.

June 26, 2025