Form 3CD Checklist for AY 2026–27: Key Disclosures and Reconciliations
Form 3CD is the statement of particulars annexed to the tax audit report under Section 44AB of the Income-tax Act, 1961. For Financial Year 2025-26 (Assessment Year 2026-27), the form must be prepared in the revised format notified by the Central Board of Direct Taxes (CBDT) through Notification No. 23/2025 dated 28 March 2025, being the Income-tax (Eighth Amendment) Rules, 2025, which came into force on 1 April 2025.
The amendments largely align the form with the changes made by the Finance (No. 2) Act, 2024, introduce a few fresh disclosures, and omit certain provisions that are no longer relevant. Incomplete or inaccurate reporting may invite notices from the Department, adverse inferences at the assessment stage and, where the matter is material, a qualification in the audit report. The auditor and the taxpayer should therefore work through the clauses listed below before the report is finalised.
Clause-wise Disclosures Requiring Attention
Clause 12 (Presumptive Income). The reference to Section 44BBC, which provides for presumptive taxation of non-resident cruise ship operators, has been inserted alongside Sections 44AD, 44ADA, 44AE, 44B, 44BB, 44BBA and 44BBB. Income offered under any other presumptive provision not specifically listed in the clause, such as Section 44BBD relating to electronics manufacturing services, should be reported under the residual item. In every case, the income so reported must be reconciled with the profit and loss account.
Clause 19 (Amounts Admissible under Specified Sections). The rows relating to Sections 32AC, 32AD, 35AC and 35CCB have been omitted, and no claim under these provisions should be reported. Reporting continues for the remaining provisions in the clause, including scientific research expenditure under Section 35 and preliminary expenses under Section 35D.
Clause 21 (Expenditure Not Admissible). Any expenditure incurred to settle proceedings initiated for contravention of a law notified by the Central Government must now be disclosed. This is a new requirement and calls for specific enquiry of the management, since such payments are often recorded under general heads such as legal, professional or miscellaneous expenses.
Clauses 22 and 26 (MSME Payments and Section 43B). These two clauses call for particular care. Clause 22 requires the interest inadmissible under Section 23 of the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006 to be reported, together with the amounts payable to micro and small enterprises, bifurcated between amounts paid within the time limit prescribed under Section 15 of that Act and amounts paid beyond it. Clause 26 separately captures the sums disallowable under Section 43B, including amounts payable to micro and small enterprises beyond the Section 15 time limit under clause (h). It should be borne in mind that the benefit of payment up to the due date of filing the return does not extend to clause (h) of Section 43B. Such sums are allowable only in the year of actual payment. The payment timeline under the MSMED Act, being a maximum of 45 days where a written agreement exists and 15 days otherwise, is therefore the governing test.
Clause 31 (Loans, Deposits and Specified Sums). Loans, deposits and specified sums accepted or repaid under Sections 269SS, 269T and 269ST must be reported with the prescribed code for the mode of transaction. Non-cash settlements and book adjustments, including journal entries, must also be captured. The monetary limits are ₹20,000 for Sections 269SS and 269T and ₹2 lakh for Section 269ST, and cash transactions at or above these levels merit close examination.
Clauses 28 and 29 (Omitted). These clauses relating to Sections 56(2)(viia) and 56(2)(viib) have been omitted from the form. However, the valuation records maintained under Rule 11UA should continue to be retained on file.
Clause 36B (Buyback of Shares). A new clause requires the taxpayer to state whether any amount has been received on buyback of shares falling under Section 2(22)(f). Where the answer is in the affirmative, the amount received and the cost of acquisition of the shares should be furnished, so that the buyback proceeds are properly traced.
Clause 44 (GST Expenditure Breakup). The break-up of total expenditure by reference to the GST registration status of the supplier (registered, composition, exempt and unregistered) continues to be required. The total should be reconciled with the profit and loss account after excluding non-expense items such as depreciation.
High-Risk Reconciliations Before Signing the Report
The following reconciliations should be completed before the audit report is signed:
Turnover: turnover as per books against GSTR-1 and GSTR-3B.
Revenue: revenue as per books against the Annual Information Statement (AIS), Taxpayer Information Summary (TIS) and Form 26AS.
TDS: tax deductible as per books against the TDS returns actually filed.
MSME creditors: balances of micro and small enterprise creditors against the disclosures made in Clause 22.
Loans and deposits: balances against bank statements and confirmations from the parties.
Closing stock: stock as per books against physical inventory records.
Clause 44: expenditure as reported against the GST purchase register.
Every material difference should be investigated, explained and supported by appropriate working papers before the report is finalised. Generic explanations are no substitute for proper verification, and the auditor should be in a position to demonstrate the basis of each conclusion if the matter is later examined.
Concluding Remarks
The revised Form 3CD places greater emphasis on specific, verifiable disclosures, particularly in respect of MSME payments, loans and deposits, and expenditure by reference to GST status. Early planning, a structured checklist and timely reconciliation of the books with external data sources will help the auditor complete the report with confidence and reduce the likelihood of queries at a later stage.
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