CBDT Introduces Key Amendments in Tax Audit Report (Form 3CD)

The Central Board of Direct Taxes (CBDT) has notified significant amendments to the tax audit report (Form 3CD) through the Income-tax (Eighth Amendment) Rules, 2025, via Notification No. 23/2025 dated March 28, 2025. These changes, effective from April 1, 2025, are 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 penalties and ensure smooth compliance. In this article, we’ll explore the amendments made to Form 3CD in more detail.

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.

What are the Key Changes in Form 3CD?

The amendments to Form 3CD bring various modifications, from introducing new disclosure requirements to omitting outdated clauses. Key changes include:

New Clause 44BBC for Income from Broadcasting & Sport-Related Events

A new Clause 44BBC has been added under Clause (12) of Form 3CD. It applies to income from broadcasting, telecasting, or rights associated with sports events under Section 44BBC of the Income-tax Act. This mandates taxpayers to disclose whether their tax audit report includes income under this section, ensuring proper reporting and reducing underreporting risks.

Omission of Specific Deductions for Simplified Reporting (Clause 19)

Several deduction-related provisions have been removed from Clause (19) of Form 3CD, simplifying tax audit reporting. The omitted sections include:

Section 32AC: Investment Deduction for New Plant and Machinery

Introduced to promote capital investment, Section 32AC provided a 15% deduction on investments exceeding INR 1 billion (US$11.69 million) in new plant and machinery for eligible companies. This deduction was available between assessment years 2014-15 to 2017-18 but is now omitted.

Section 32AD: Additional Deduction for Investment in Backward Areas

This section granted a 15% additional deduction to companies setting up manufacturing units in notified backward areas of Andhra Pradesh, Bihar, Telangana, and West Bengal. The objective was to encourage industrial development in less-developed regions by offering tax incentives for new plant and machinery investments.

Section 35AC: Deduction for Contributions to Approved Welfare Projects

Taxpayers could claim a 100% deduction on donations made to government-approved projects focused on education, healthcare, infrastructure, and environmental sustainability. This provision aimed to promote corporate social responsibility (CSR) initiatives by incentivizing contributions to social welfare projects.

Section 35CCB: Deduction for Agro-Based Research Programs

This section allowed deductions for expenditures on government-approved agro-based research programs, particularly those enhancing agricultural productivity and sustainable farming practices. Contributions made towards these initiatives were eligible for tax benefits to encourage investment in agricultural development.

New Disclosure for Regulatory Settlements (Clause 21)

Taxpayers must now disclose expenses incurred for settlements related to contraventions of laws as notified by the government. It means taxpayers are now required to report the costs associated with the payment of penalties

Enhanced MSME Payment Reporting (Clause 22)

Businesses must provide detailed reporting on payments made to MSMEs under the MSME Development Act, 2006. The required disclosures include:

• Total outstanding amounts payable under Section 15.
• Interest not claimable as a deduction under Section 23 due to delayed payments.
• A clear classification of payments made within and beyond the prescribed period.

Modification in Clause (26) for Section 43B Deductions

Clause (26), which covers deductions allowable under Section 43B, has been revised to refine reporting requirements and enhance clarity. This clause relates to the actual payments, such as tax, duties, and statutory payments. The new amendment introduces precise language to improve the clarity between different kinds of payments that come under Section 43B of the Income tax act.

Removal of Clauses (28) and (29)

These clauses, which required disclosures on TDS non-compliance (Clause 28) and disallowed payments to partners under Sections 40(b) and 40(ba) (Clause 29), have been omitted to reduce the unnecessary reporting burdens. 

Changes in Loan and Deposit Reporting (Clause 31)

A significant update in Clause 31 enhances the accuracy of loan and deposit transaction reporting. A new drop-down selection feature now allows taxpayers to specify the exact nature of their transactions. Additionally, a structured coding system has been introduced to classify transactions into categories such as:

• Cash payments and receipts
• Asset transfers
• Journal entries and other transactions

New Reporting Requirement for Buyback of Shares (Clause 36B)

A new clause, 36B, mandates reporting of buyback transactions under Section 2(22)(f), including:

• Amount received from the buyback
• Cost of acquiring the shares

Below, we have attached the official PDF notification regarding these key changes in Form 3CD notified through Income-tax (Eighth Amendment) Rules, 2025. 

Key Takeaways:

• Introduction of New Clause 44BBC: Income from broadcasting & sports events now requires disclosure.
• Regulatory Settlements: Businesses must disclose expenses related to legal settlements and penalties.
• Enhanced MSME Reporting: Detailed disclosures on payments made to MSMEs, including outstanding amounts and delayed payments.
• Updated Loan & Deposit Reporting: Improved clarity with structured coding for loan and deposit transactions.
• Buyback of Shares: New reporting requirement for transactions involving the buyback of shares.
• Effective Date: These changes will be effective from April 1, 2025, and businesses need to comply with the updated reporting norms to avoid penalties.

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