Form 3CD Tax Audit 2025: Understanding New Disclosure, Disallowance & Compliance Norms

The Central Board of Direct Taxes (CBDT) has introduced amendments to Form 3CD, applicable from April 1, 2025, for tax audits under Section 44AB of the Income-tax Act, 1961. These changes impact the nature of information required for disclosures, taxability, and disallowances, making it essential for businesses, professionals, and auditors to prepare well in advance.

This guidance note outlines the detailed reporting requirements under the revised clauses, explaining what information needs to be captured, how it affects taxability, and what working papers businesses and auditors should maintain.

Key Amendments in Form 3CD – Clause-wise Nature of Information Required

Clause 36B – Reporting of Buyback of Shares

Nature of Information Required:

1. Details of buyback transactions, including:

   • Date of buyback approval

   • Number of shares bought back

   • Buyback price per share

   • Total amount paid for buyback

2. Cost of acquisition of shares bought back, including:

   • Original purchase price

   • Mode of acquisition (IPO, secondary market, ESOP, etc.)

3. Tax treatment of buyback:

   • Whether tax under Section 115QA has been paid by the company

   • Capital gains computation for shareholders, if applicable

Compliance & Audit Preparation:

• Maintain buyback approval documents, resolutions, and payment proofs.

• Cross-check whether the buyback tax was correctly deducted and reported.

Clause 12 – Addition of Section 44BBC (Presumptive Taxation for Certain Professionals)

Nature of Information Required:

1. Applicability of Section 44BBC:

   • Whether the taxpayer is engaged in broadcasting, telecasting, or sports event rights

   • Total gross receipts from such activities

2. Presumptive taxation computation:

   • Whether 10% of gross receipts is being offered as taxable income

   • If not opting for 44BBC, details of books of accounts maintained

Compliance & Audit Preparation:

• Maintain a separate ledger for broadcasting-related income.

• Verify whether TDS deductions under Section 194E/195 have been properly recorded.

Clause 19 – Removal of Certain Deductions

Nature of Information Required:

• Confirmation that the following deductions are not claimed:

  • Section 32AC – Investment in plant & machinery

  • Section 32AD – Investment in backward areas

  • Section 35AC – Expenditure on eligible projects

  • Section 35CCB – Agricultural development programs

• Review of tax computation to ensure these deductions are not included in taxable income calculations.

Compliance & Audit Preparation:

• Review prior years’ tax filings to identify any carried-forward claims.

• Ensure adjustments in financial statements for businesses affected by the removal of these deductions.

Clause 21 – Disclosure of Legal Contravention Settlements

Nature of Information Required:

1. Breakdown of legal expenses, specifying:

   • Legal fees paid for representation

   • Fines, penalties, and settlements paid

   • Nature of the offense (contractual dispute, regulatory non-compliance, etc.)

2. Justification of deductibility:

   • Section 37(1) disallows expenses related to penalties and legal contraventions.

   • Only pure legal fees for defense or compliance-related matters are allowed.

Compliance & Audit Preparation:

• Maintain separate accounting for legal fees vs. fines and penalties.

• Review agreements, legal notices, and case settlements to justify expense claims.

Clause 22 – Revised MSME Payment Reporting

Nature of Information Required:

1. Classification of vendors into:

   • Micro Enterprises

   • Small Enterprises

2. Details of payments due to MSMEs, including:

   • Total outstanding as of year-end

   • Breakdown of payments made within and beyond 45 days

   • Interest payable under Section 23 of the MSMED Act

3. Disallowance of delayed payments:

   • Expenses related to delayed payments beyond the due date are disallowed under Section 43B(h).

Compliance & Audit Preparation:

• Maintain MSME vendor classification list with Udyam Registration details.

• Generate aging reports of outstanding MSME payments.

Clause 26 – Adjustments in Section 43B Reporting

Nature of Information Required:

1. Breakdown of statutory payments made, including:

   • GST, TDS, PF, ESI, bonus, gratuity

2. Date of actual payment vs. due date:

   • If payment is delayed beyond the due date of return filing, it will be disallowed.

Compliance & Audit Preparation:

• Ensure statutory liabilities are cleared within the return filing deadline.

• Cross-check bank statements for actual payment dates.

Removal of Clauses 28 & 29 – Share Valuation Reporting Omitted

Nature of Information Required:

• Though omitted from Form 3CD, businesses still need to maintain Rule 11UA valuation reports for:

  • Shares issued at a premium (Section 56(2)(viib))

  • Shares received at less than fair market value (Section 56(2)(viia))

Compliance & Audit Preparation:

• Ensure valuation reports are in place for share transactions.

• Verify that any premium charged on shares has been taxed appropriately.

Clause 31 – Dropdown-Based Loan & Deposit Reporting

Nature of Information Required:

1. Loan and deposit transactions, categorized by:

   • Type of transaction (secured loan, unsecured loan, deposit, advance, etc.)

   • Nature of lender/borrower (company, firm, individual, etc.)

   • Compliance with Sections 269SS & 269T (cash transactions over ₹20,000).

Compliance & Audit Preparation:

• Maintain detailed ledgers for all loans and deposits.

• Review whether any transactions violate cash deposit/loan restrictions.

Conclusion

The amendments to Form 3CD significantly impact the nature of information required for tax audits, focusing on detailed disclosures, proper tax treatment, and elimination of outdated deductions.

Businesses must:

• Ensure correct reporting of buybacks, MSME payments, and legal settlements.

• Avoid claiming discontinued deductions and ensure timely payment of statutory dues.

• Maintain proper documentation for loans, deposits, and share transactions.

For professionals conducting tax audits, it is critical to:

• Review books of accounts for non-deductible expenses and disallowed payments.

• Ensure compliance with MSME reporting norms and loan classification rules.

• Verify supporting documents for all disclosures made under revised Form 3CD.

By integrating these changes into audit planning and compliance review, businesses and professionals can ensure seamless tax audits and avoid potential penalties for misreporting.