As we enter the tax audit season for Assessment Year (AY) 2025–26, tax professionals and businesses must take note of the significant updates brought in through CBDT Notification No. 23/2025 dated March 28, 2025. These changes, applicable from April 1, 2025, directly impact the structure and reporting requirements in Form 3CB and Form 3CD under Section 44AB of the Income Tax Act, 1961.
Let’s explore each change in technical and practical detail, supported by relevant sections, examples, and compliance strategies.
Form 3CB
Filed by a Chartered Accountant when the assessee’s accounts are not required to be audited under any other law (e.g., non-corporates like individuals, firms, sole proprietors). It contains:
- Auditor’s observations
- Certification of the financial statements’ true and fair view
- Reference to details in Form 3CD
Form 3CD
An annexure to Form 3CB (or Form 3CA) with 44 clauses (as of AY 2024–25), requiring disclosure of:
- Section-wise deductions claimed
- Specific transactions
- Payments to related parties
- Loan acceptances/repayments
- Disallowances and deemed incomes
Key Amendments in Form 3CD for AY 2025–26
Clause 44BBC: Reporting Presumptive Income from Sports Broadcasting
Legal Reference: Section 44BBC of the Income Tax Act (introduced by Finance Act, 2024)
- Who it applies to: Residents engaged in broadcasting, telecasting, production, or rights management of live sporting events, including recorded rebroadcasts.
- Presumptive Scheme: 10% of gross receipts is deemed to be income. No further deductions for expenses like salaries, advertising costs, or rentals are allowed.
- Reporting Requirement: Under Clause 44BBC, disclose:
- Nature of business
- Opting for presumptive scheme under 44BBC
- Gross receipts
- Deemed income computed
🔍Example:
Sports Stream Pvt. Ltd. telecasts IPL matches with ₹5 crore in receipts. It opts for 44BBC, declaring ₹50 lakh as presumptive income. The CA must disclose this income under Clause 44BBC and ensure that no other expense deductions are taken.
✅Importance: Adds visibility to high-cash-flow sectors, prevents deduction misuse, and facilitates easier assessments under presumptive taxation.
Clause 19: Removal of Expired Deduction Provisions
Provisions Removed:
- Section 32AC: 15% deduction for investment in new plant/machinery above ₹100 crore (available till AY 2017–18)
- Section 32AD: Additional 15% deduction for investments in notified backward states (AP, Bihar, Telangana, WB)
- Section 80IB/80IC/80ID: Deductions for industrial undertakings in specific regions/industries
📌No longer relevant due to expiry of these schemes.
🔍Example:
Tech Mach Industries, set up in Bihar, had claimed ₹30 lakh under Section 32AD in AY 2017–18. For AY 2025–26, this is not reportable, simplifying audit compliance under Clause 19.
✅Significance: Aligns Form 3CD with current law, reduces redundancy, and avoids inadvertent reporting of obsolete claims.
Omission of Clauses 28 & 29: Simplification of Redundant Reporting
- Clause 28: Income from other sources
- Clause 29: Income chargeable under “Capital Gains”
These are already captured in ITR schedules (e.g., Schedule-CG or Schedule-OS) and other clauses of Form 3CD, leading to duplication.
Example:
Ravi Traders sells a property, earning ₹2 crore capital gains. Instead of duplicating in Clause 28, the gain is now only reported in the ITR under Schedule-CG.
✅Significance: Reduces reporting load on auditors, avoids inconsistency in reporting across ITR and Form 3CD.
Clause 22: MSME Payment Disclosure and Disallowance
Legal Reference: Section 23 of the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006
- Mandatory Reporting: Delay in payments to MSMEs beyond the permissible credit period (45 days or as per agreement) leads to interest disallowance.
- Interest Rate: 3x the RBI bank rate on the defaulted amount.
Example:
Sunrise Enterprises delays payment of ₹50 lakh to MSME vendors by 60 days. Interest liability = ₹3 lakh.
👉 This interest must be disallowed under Clause 22 and disclosed in Form 3CD.
✅Significance: Reinforces the government’s pro-MSME policy, imposes tax consequences on delayed payments, and mandates auditors to flag non-compliance.
Clause 36B: New Reporting of Deemed Dividends under Section 2(22)(f)
Legal Reference: Section 2(22)(f) – Deemed dividends in closely held companies
- When applicable:
- Closely held company advances loans/credits to shareholders with significant shareholding
- Treated as dividends taxable in shareholders’ hands
- Clause 36B: Requires detailed reporting of:
- Shareholder details
- Nature and purpose of transaction
- Amount advanced/loaned
- Tax treatment
Example:
Verma & Sons Pvt. Ltd. gives ₹1 crore to its major shareholder. Though labelled as a loan, it’s a deemed dividend under Section 2(22)(f). The CA must now report this under Clause 36B and check the shareholder’s taxability.
✅Significance: Closes loopholes used by shareholders to extract company funds tax-free.
Clause 31: Enhanced Transaction-Wise Loan Reporting
Legal Reference: Sections 269SS and 269T – Prohibit cash loans/repayments > ₹20,000
- New Feature: Drop-down field in Clause 31 for categorizing each loan transaction
- Loan accepted
- Loan repaid
- Mode of transaction
- Name/PAN of counterparty
- Applicable when: Loan/Deposit > ₹20,000 in a single or aggregate transaction
Example:
Priya Constructions accepts ₹50 lakh from a supplier. If received in cash, it violates Section 269SS, triggering a penalty of ₹50 lakh (equal to the loan amount).
👉 Must be disclosed under Clause 31 with details, and the auditor must mention it in Form 3CB.
✅Significance: Standardizes reporting, curbs black money flow, and improves scrutiny.
Impact on Form 3CB
Though the structural changes are made in Form 3CD, they indirectly impact Form 3CB, since it references and relies upon the details in Form 3CD.
Key Effects:
- Higher Auditor Responsibility:
- Must validate presumptive income (Clause 44BBC), deemed dividends (Clause 36B), and MSME interest disallowance (Clause 22).
- Increased documentation and professional judgment required.
- Reduced Narrative Complexity:
- With Clause 28 and 29 omitted, the reporting becomes more focused.
- Cross-verification of Key Clauses:
Loans accepted/paid (Clause 31) must match ledger balances and payment modes in Form 3CB.