Form 3CD Clause 27 for AY 2026-27: GST ITC & Prior Period Items
Updated: Sep 28
Direct answer
Update — 28 September 2026: CBDT changed the specified ordinary AY 2026–27 tax-audit report deadline from 30 September to 21 October 2026 and the related audited return deadline from 31 October to 21 November 2026. Transfer-pricing Form 3CEB cases follow a separate timeline. Official Income Tax Department announcement.
For AY 2026-27 (FY 2025-26), Form 3CD Clause 27 has two separate jobs. Clause 27(a) requires GST/Central Excise credit reporting — the amount of Input Tax Credit (ITC) or CENVAT credit availed or utilised during the year, its treatment in the profit and loss account, and the treatment of outstanding credit in the accounts. Clause 27(b) requires reporting of prior-period income or expenditure credited or debited to the profit and loss account; this part is relevant to assessees following the mercantile system of accounting.
For ordinary tax-audit cases for AY 2026-27, Forms 3CA/3CB with Form 3CD continue under the Income-tax Act, 1961 and the tax-audit report is generally due by 21 October 2026.
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Why Clause 27 matters in 2026
Clause 27 looks deceptively short, but it often exposes differences between the GST ledgers, the general ledger and the tax-audit working papers. A mismatch may not automatically create an income-tax disallowance, but it can signal weak reconciliation, wrong accounting treatment, duplicated ITC, unrecorded reversals or an unexplained prior-period entry.
The Income Tax Department’s current 2026 tax-audit material expressly states that Clause 27(a) applies to assessees registered under GST/Central Excise and that Clause 27(b) deals with prior-period items for assessees following mercantile accounting.
Clause 27(a): what exactly should be reconciled?
1. ITC availed during FY 2025-26
Start with the credit actually availed during the year, not merely purchase invoices received. The tax-audit file should be capable of reconciling the books with the GST credit trail, including eligible credit booked, credit actually availed in returns, reversals, re-availment and year-end balances.
2. ITC utilised during the year
Utilisation is different from availment. A taxpayer may avail ITC but carry part of it forward. The Clause 27 working should therefore separately explain the credit availed and the credit utilised against output-tax liability, rather than treating both figures as interchangeable.
3. Treatment in the profit and loss account
Where eligible GST input tax is accounted for as a recoverable balance rather than an expense, the treatment should be consistent with the books and supporting ledgers. Conversely, blocked or ineligible credit may form part of the relevant expense or asset cost depending on the facts. The tax auditor should be able to trace the accounting logic rather than simply copy the electronic credit ledger balance.
4. Outstanding ITC at year end
The closing GST/ITC balances in the books should be reconciled with the returns and electronic ledgers, with reconciling items clearly documented. Timing differences, pending supplier corrections, reversals, import-related credit and credit under dispute should not be hidden inside a single unexplained balance.
A practical Clause 27(a) reconciliation
A strong working paper should normally move through the following sequence:
1. Opening ITC balance as per books and prior-year working papers.
2. ITC booked during FY 2025-26, mapped to purchase and expense ledgers.
3. ITC availed in GST returns during FY 2025-26.
4. ITC reversals and re-availments, with reason codes and supporting evidence.
5. ITC utilised against output liability.
6. Closing ITC balance as per books.
7. Closing balance as per GST electronic ledgers / return records.
8. Documented reconciling items and management explanations.
Worked example: ITC availed is not the same as ITC utilised
Assume a company starts FY 2025-26 with ₹8 lakh of eligible ITC. During the year it avails another ₹42 lakh and reverses ₹2 lakh. It utilises ₹39 lakh against output tax. The closing credit position is therefore not simply the ₹42 lakh availed during the year. Clause 27 working papers should show the movement clearly and reconcile the closing balance to the books and GST records.
This movement-based approach is much more defensible than reporting one figure without explaining how it relates to the general ledger and returns.
Clause 27(b): prior-period income and expenditure
Clause 27(b) asks for particulars of prior-period income or expenditure that is credited or debited to the current-year profit and loss account. The Department’s 2026 tax-audit guidance notes that this requirement is relevant to assessees following the mercantile system.
The key audit question is not merely whether an invoice carries an old date. The working paper should identify why an item belonging economically or contractually to an earlier period has been recognised in FY 2025-26, whether the liability or income was ascertainable earlier, and whether the accounting treatment is consistent with the applicable accounting framework and the tax position taken.
Common Clause 27(b) risk areas
1. Old vendor invoices booked after year-end closure without a clear cut-off analysis.
2. Prior-year professional fees, incentives, bonuses or service charges recognised in the current year.
3. Customer claims or supplementary billing relating to an earlier period.
4. Reversals of old provisions without a clear link to the original year.
5. Entries labelled “prior period” in the ledger but not separately reviewed for tax treatment.
Clause 27 vs other Form 3CD reconciliations
Clause 27 should not be prepared in isolation. GST and inventory accounting can affect closing-stock and Section 145A analysis under Clause 14. For that reconciliation, see Form 3CD Clause 14: Closing Stock, Section 145A & ITR Reconciliation.
Turnover and GST treatment also need to remain consistent with the Section 44AB turnover working. See Tax Audit Turnover Calculation AY 2026-27: Section 44AB 5% Cash Test & GST.
Manufacturing and trading businesses should also align quantity and stock movements with Form 3CD Clause 35: Stock, Quantitative Details & Yield Reconciliation.
Pre-filing checklist for AY 2026-27
1. Reconcile the opening ITC balance to the prior-year closing working paper.
2. Match the purchase/expense ledgers with ITC actually availed during FY 2025-26.
3. Separately identify reversals, re-availments and disputed credits.
4. Reconcile ITC utilised with output-tax settlement records.
5. Explain every material difference between book balances and GST electronic ledgers.
6. Review whether blocked or ineligible credit has been appropriately expensed/capitalised.
7. Run a ledger scan for “prior period”, “previous year”, “old invoice”, “provision reversal” and similar descriptions.
8. For each prior-period item, document the year to which it relates and why it is recognised in FY 2025-26.
9. Cross-check the Clause 27 working with closing stock, turnover, GST expenditure and ITR reconciliations.
10. Retain management explanations and supporting schedules in the tax-audit file.
FAQs
Does Clause 27(a) apply only to old CENVAT credit?
No. The Income Tax Department’s current tax-audit guidance refers to Central Value Added Tax credits / Input Tax Credit and states that Clause 27(a) applies to assessees registered under GST/Central Excise. For current businesses, GST ITC is therefore the practical focus.
Is every difference between the GST portal and books an error?
No. Timing and classification differences can exist. The risk is an unexplained difference. The tax-audit file should identify and support each material reconciling item.
Does Clause 27(b) apply to cash-basis assessees?
The Department’s 2026 guidance states that Clause 27(b), dealing with prior-period items, applies to assessees following the mercantile system of accounting.
What is the normal Form 3CD due date for AY 2026-27?
For ordinary tax-audit cases, the Income Tax Department states that the tax-audit report for FY 2025-26 / AY 2026-27 is to be filed in Forms 3CA/3CB with Form 3CD and is generally due on 21 October 2026. Transfer-pricing cases can follow a different reporting timeline.
Primary references
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Disclaimer: This article is for general professional information and does not constitute tax, legal or accounting advice for any specific facts. Statutory provisions, forms, portal utilities, circulars and due dates should be rechecked at the time of filing.
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