For Assessment Year (AY) 2025-26, India’s tax compliance regime has seen meaningful changes to Forms 3CB and 3CD, designed to improve transparency, compliance, and ease of reporting. The changes, as notified by the Central Board of Direct Taxes (CBDT) through Notification No. 23/2025 dated 28 March 2025, are effective from April 1, 2025, and are crucial for businesses, tax professionals, and auditors. Familiarity with these updates will help ensure accurate reporting and avoid penalties.

Overview: Forms 3CB & 3CD

• Form 3CB: Tax audit report for taxpayers (like proprietorships and partnerships) audited only under the Income Tax Act, 1961.

• Form 3CD: A detailed statement accompanying Form 3CB or 3CA, listing particulars (over 44 clauses) about the entity’s financials and compliance, including loans, deductions, and MSME payments.

Key Updates for AY 2025-26

1. Addition under Clause12:
    Taxation on income from business of operation of cruise ship

• What’s New: Addition of Section 44BBC under Clause 12 : Explicit disclosure of income from business operation of cruise ships in case of Non- resident

• How It Works: A fixed percentage of gross receipts from such activities is taxed, with no deduction for actual business expenses.

• Purpose: Ensures transparent reporting and correct taxation of broadcasting and telecasting income.

2. Omission of Section 32AC, 32AD, 35AC & 35CCB under Clause 19

• Change: Clauses previously dealing with deductions—such as for investments in new plant/machinery or for Notified Backwards Area— have been removed from Form 3CD.

• Impact: By eliminating outdated deduction sections, the latest changes to Form 3CD help declutter the audit report and minimize confusion. This not only aligns the form with current tax provisions but also reduces the risk of reporting errors.

3. Addition under Clause 21

• Additional disclosure of expenditure incurred to settle proceedings initiated in relation to contravention under such law as notified by the CG.

 4. Enhanced Reporting Under Clause 22 (MSME Payments)

• Revision: Under Clause 22, In addition to disclosure of interest inadmissible under Sec 23 of MSME Act Now it is required to disclose total amount paid to MSME including amount paid within time limit and beyond time limit specified under section 15 of MSME Act,2006.

• Consequence: Clear disclosure of payments made to MSME.

 5. Omission of Clauses 28 and 29

• Update: Clause 28 & 29 have been omitted. These clauses previously required reporting of specified transactions such as capital gains and incomes from other sources, 

• Result: Audit reporting is more streamlined, reducing redundancy and saving time.

 6. Transaction-wise Loan Reporting (Clause 31)

• Feature: Clause 31 now includes a drop feature for transaction-wise reporting of loans taken or repayment. This insert coding system categorized the nature of each transaction makes it easier to track loan related provision.

• Compliance: Supports enforcement of anti-cash transaction rules and anti-money laundering norms.

7. New Clause 36B: Disclosure for Deemed Dividends

• Addition: Clause 36B has been introduced, requiring Whether the assess has received any amount for buy-back of shares which are treated as deemed dividend under section 2(22)(f) of Income Tax Act,1961.

• Objective: Strengthens oversight on distributions that could otherwise escape dividend taxation.

Audit Impact and Practical Tips

• Wider Auditor Responsibility: Auditors must verify and cross-check broader details, particularly with new clauses like 44BBC and 36B.

• MSME & Loan Compliance: Special attention should be paid to timely MSME payments and proper banking channel usage for large loans.

• Streamlined Reporting: Omission of outdated clauses reduces workload and focuses efforts on current legal requirements.

Best Practices

• Consult the latest CBDT Notification and updated forms on the Income Tax portal.

• Use a new version of the utility that includes all new features and dropdowns.

• Ensure all large transactions, especially loans and MSME payments, comply fully with updated rules before completing the audit report.

Key Deadlines

• Tax Audit Report Submission: September 30, 2025

• Income Tax Return Filing: October 31, 2025

• Timely action is essential to meet these deadlines and avoid late fees or penalties.

Conclusion

The 2025-26 changes to Forms 3CB and 3CD promote a modern, transparent tax audit landscape. They mandate enhanced reporting on broadcasting/telecasting income, stricter MSME compliance, more detailed loan tracking, and the removal of redundant disclosures. Businesses and auditors should align processes and documentation promptly, uphold strict accuracy, and seek timely professional advice as needed.

Source: https://incometaxindia.gov.in/communications/notification/notification-no-23-2025.pdf