Clause 41 of Tax Audit Report: Demand & Refund Reporting for AY 2026-27
Updated: Sep 28
Clause 41 of tax audit report requires the tax auditor to report details of any demand raised or refund issued during FY 2025-26 under tax laws other than the Income-tax Act, 1961 and the Wealth-tax Act, 1957, together with details of the relevant proceedings. For AY 2026-27, this means businesses should identify orders and proceedings under GST, customs, legacy excise/service tax, VAT/CST, professional tax and other qualifying tax laws, reconcile them with the books and litigation records, and ensure that Form 3CD reflects orders issued during the year even where the dispute relates to an earlier period.
Clause 41 of Tax Audit Report: What Exactly Must Be Reported?
The current Income Tax Department guidance on items reportable in the tax audit report describes Clause 41 as a disclosure of demand raised or refund issued during the previous year under tax laws other than the Income-tax Act, 1961 and Wealth-tax Act, 1957, along with details of the relevant proceedings. The focus is therefore not merely on cash paid or cash received. The audit question begins with whether a governmental tax authority issued a demand or refund order during the relevant previous year.
For FY 2025-26, the practical population should be built from assessment orders, adjudication orders, appellate orders, refund sanctions, electronic demand registers, GST portal notices/orders, customs or legacy indirect-tax records, professional-tax assessments and similar tax proceedings. A simple general-ledger scan can miss an order that has been disputed, stayed, adjusted against another refund, or booked only after year-end.
Which Tax Laws Can Fall Within Form 3CD Clause 41?
Clause 41 expressly excludes the Income-tax Act, 1961 and the Wealth-tax Act, 1957. ICAI guidance has historically identified indirect-tax laws such as Central Excise, Service Tax, Customs, VAT, CST and Professional Tax as typical examples of “other tax laws.” In the current environment, GST is the most common source of Clause 41 reporting for many businesses. The exact treatment of a levy should still be evaluated on its legal character rather than assuming that every government charge, cess, municipal levy or fee is automatically a “tax law” for this clause.
For GST, the audit team should pay particular attention to adjudication orders creating tax, interest or penalty demand; appellate orders modifying an earlier demand; refund sanction or rejection orders; and adjustments where a refund is set off against an outstanding demand. The reporting should reflect the actual order/proceeding rather than an unsupported estimate of a possible future exposure.
The Key Timing Rule: Order Issued During FY 2025-26
One of the most important Clause 41 points is timing. ICAI guidance explains that an order issued during the previous year may relate to a period other than that previous year and still be reportable. For example, a GST demand order issued in November 2025 for FY 2021-22 can still enter Clause 41 for the tax audit of FY 2025-26 because the relevant demand order was issued during FY 2025-26. The tax auditor should therefore review the date of the order, not only the tax period to which the dispute relates.
The reverse is also important. A demand originating in an older order does not become a fresh Clause 41 item merely because the assessee pays an instalment during FY 2025-26, unless a relevant order or proceeding during the year creates, modifies or otherwise gives rise to reportable information. This is why legal-order tracking should be kept separately from payment tracking.
Demand Raised vs Amount Paid: Do Not Confuse the Two
Clause 41 is an order-and-proceeding disclosure, not a schedule of statutory dues actually paid. A demand may remain unpaid because it is under appeal, may be partly stayed, may be adjusted against a refund, or may be paid after the financial year. Conversely, a payment in FY 2025-26 may relate to a demand order issued earlier. The working paper should therefore separately capture the order amount, disputed or accepted status, payment/adjustment status where relevant, and the related proceeding so that the tax audit report is not distorted by cash-flow timing.
Worked Example: GST Demand and Refund in AY 2026-27 Tax Audit
Assume a company receives a GST adjudication order on 15 December 2025 raising a demand of ₹18 lakh for FY 2022-23. The company files an appeal and pays the statutory pre-deposit. Separately, on 10 February 2026 the GST department sanctions a refund of ₹6 lakh relating to exports made in an earlier year, and ₹2 lakh of that refund is adjusted against another outstanding GST demand. For Clause 41, both the demand order and the refund order should be reviewed because they were issued during FY 2025-26. The fact that the demand relates to FY 2022-23 does not remove it from the FY 2025-26 Clause 41 population. The refund adjustment should also be traced and disclosed consistently with the underlying proceedings.
Eight-Step Clause 41 Reconciliation Checklist for AY 2026-27
1. Obtain a management representation and a complete tax-litigation register covering GST, customs, legacy excise/service tax, VAT/CST, professional tax and other relevant tax laws. 2. Download or collect all assessment, adjudication, appellate and refund orders issued between 1 April 2025 and 31 March 2026. 3. Match each order with the relevant notice, appeal, stay, pre-deposit and subsequent proceeding. 4. Reconcile demand/refund amounts with provisions, contingent-liability disclosures, receivables, statutory ledgers and payments in the books. 5. Check whether any refund was adjusted against an outstanding demand. 6. Separate Income-tax and Wealth-tax matters because Clause 41 excludes them. 7. Review whether orders relating to older tax periods were nevertheless issued during FY 2025-26. 8. Tie the final Clause 41 schedule to the current Form 3CD utility before the report is signed.
Common Clause 41 Tax Audit Mistakes
The most common error is reporting only demands that were actually paid during the year. Another is restricting the review to FY 2025-26 tax periods and missing orders issued during the year for older periods. Teams also sometimes omit refund orders because the refund was adjusted rather than received in the bank, or rely on the ledger without obtaining copies of departmental orders. A further risk arises where GST matters are tracked by an external consultant and never reach the central finance or tax-audit file.
A clean Clause 41 process therefore needs a cross-functional confirmation from finance, indirect tax, legal/litigation teams and external advisors. The auditor should obtain the underlying order, not merely an email summary, and should reconcile material amounts with the financial statements and contingent-liability disclosures.
Clause 41 and the Current AY 2026-27 Form 3CD Utility
FY 2025-26 / AY 2026-27 continues under the Form 3CA/3CB with Form 3CD framework of the Income-tax Act, 1961. The Income Tax Department’s current utility page has also recorded an enhancement allowing more than 100 rows in Clause 41, which is operationally relevant for businesses with a large volume of GST or other tax orders. The practical lesson is to maintain the demand/refund register in a structured, upload-ready format rather than trying to reconstruct it close to the tax-audit deadline.
How Clause 41 Fits Into the Wider Tax Audit File
Clause 41 should not be prepared in isolation. A tax demand can affect provisions, contingent liabilities, expense disallowances, interest, prior-period items and disclosures elsewhere in the financial statements or Form 3CD. The tax-audit team should therefore compare the Clause 41 register with statutory liabilities, litigation disclosures and the tax computation. For the broader framework, use the PGT & Associates Tax Audit AY 2026-27 hub and the Tax Audit Clauses for AY 2026-27 clause-list page, which are included as related resources on this article.
FAQs on Clause 41 of Tax Audit Report
Does Clause 41 include income-tax demands? No. The clause specifically deals with demands and refunds under tax laws other than the Income-tax Act, 1961 and the Wealth-tax Act, 1957.
Is a GST demand for FY 2022-23 reportable in the FY 2025-26 tax audit? It can be, if the relevant demand order was issued during FY 2025-26. The tax period and the order date are separate concepts for Clause 41 reporting.
Should an unpaid demand be reported? The clause is not limited to amounts paid. The key question is whether a demand was raised or refund issued during the previous year under a qualifying tax law, along with the relevant proceeding.
What if a refund is adjusted against another demand? ICAI guidance indicates that adjustment of a refund against a demand should also be reported under this clause. The working paper should preserve both orders and the adjustment trail.
Can GST orders be omitted if they are already disclosed as contingent liabilities? No. Financial-statement disclosure and Form 3CD Clause 41 serve different reporting purposes. Reconcile them, but do not treat one as a substitute for the other.
Primary Sources and Practical Takeaway
Primary references reviewed include the Income Tax Department’s current “Items reportable in the Tax Audit Report” guidance (2026), the Income Tax Department’s current Form 3CA/3CB-3CD utilities and filing materials, and ICAI Guidance Note material on Clause 41. Practical takeaway: build Clause 41 from departmental orders and proceedings first, then reconcile to the books. Do not start from payments alone, and do not exclude an order merely because it relates to an earlier tax period.
PGT & Associates can assist businesses with AY 2026-27 tax-audit readiness, GST demand/refund reconciliation and Form 3CD working papers. This article is general professional information and does not constitute transaction-specific tax or legal advice.
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