Top 5 Key Changes in Tax Audit Form 3CD for AY 2025-26

For Assessment Year 2025-26, the Central Board of Direct Taxes (CBDT) has introduced several critical amendments to Form 3CD. These changes aim to enhance reporting integrity, especially with respect to MSMEs, buybacks, and specified disallowances. Here are the top 5 updates you should know about.

Revised Reporting for Payments to MSME Entities

Form 3CD now mandates, in clause 22, the detailed disclosure of payments due and paid to micro and small enterprises. The form must show total dues, payments made on time, and payments delayed beyond due dates as per the MSMED Act. Clause 26 has also been revised to track unpaid disallowed amounts under section 43B(h) from earlier financial years. This will require data alignment with MSME returns under the Companies Act.

Disclosures Required for Share Buybacks (Clause 36B)

A new clause 36B has been added to incorporate buyback transactions treated as dividend income. Taxpayers must disclose the amount received from the buyback and the cost of acquisition of those shares. This revision aligns with the change introduced by the Finance Act, 2025, making it a shareholder-side reporting responsibility.

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Settlement-Related Expenditure Reporting (Clause 21)

Clause 21 has been enhanced to include reporting of expenses incurred in relation to the settlement of legal proceedings under laws such as SEBI, SCRA, and others. These entail professional fees or penalties, which are now disallowed under section 37. The expansion moves towards curtailing deductions for non-business-related violations.

Integration of Coded Loan and Deposit Transactions (Clause 31)

Clause 31 now requires coded reporting for transactions involving loans, deposits, and advances. Codes A to L cover various modes, including cash, non-account payee instruments, journal entries, and adjustments. This provides clarity and control over allowable modes of payment under sections 269SS and 269T.

Inclusion of Cruise Ship Income Under Presumptive Taxation (Clause 12)

Clause 12 has been updated to encompass income under section 44BBC, catering to non-residents operating cruise ships. This ensures uniform presumptive taxation and greater traceability of business incomes in maritime services.

Conclusion

The revamped Form 3CD introduces structurally crucial changes, particularly fortifying compliance with MSME payments and disallowable expenses. The inclusion of coded loan reporting and cruise income aims at enhancing data collection and discouraging non-transparent adjustments. Taxpayers and auditors need to be more vigilant and ensure accurate and timely reporting.

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