Form 3CD Clause 36A for AY 2026-27: Deemed Dividend & Section 2(22)(e)

Direct answer: For AY 2026-27, Clause 36A of Form 3CD is a focused tax-audit disclosure for deemed dividend income under section 2(22)(e). The audit team should not treat every shareholder loan or advance as deemed dividend: the provision requires a transaction-by-transaction test of the payer company, shareholder voting interest, accumulated profits, the recipient relationship and statutory exceptions.

What Clause 36A is designed to capture

Clause 36A connects the tax audit to section 2(22)(e), the deemed-dividend rule for certain payments by closely held companies. In practice, this means the auditor should identify loans, advances and relevant payments involving significant shareholders and concerns connected with them, then determine whether the statutory conditions are met and quantify the amount reportable.

Why AY 2026-27 needs special attention

FY 2025-26 / AY 2026-27 remains within the Income-tax Act, 1961 tax-audit framework. The Income Tax Department continues to prescribe Form 3CA or 3CB with Form 3CD for taxpayers audited under section 44AB. The Department’s AY 2026-27 ITR-3 validation rules also expressly cross-check dividend income referred to in section 2(22)(e) against Form 3CD Clause 36A. That makes consistency between the audit report and return data a practical filing control, not merely a disclosure preference.

Section 2(22)(e): the core conditions

A robust review should test at least five elements: whether the payer is a company in which the public are not substantially interested; whether the relevant shareholder has the prescribed substantial voting interest; whether the payment is a loan, advance or a payment for the individual benefit of the shareholder; whether a concern receiving the payment has the required shareholder connection; and the extent of accumulated profits available for the deemed-dividend computation. The tax result depends on the precise statutory facts, so ledger labels alone are insufficient.

A practical Clause 36A reconciliation workflow

1. Extract all loans, advances, inter-company balances and shareholder/director current accounts from the general ledger. 2. Map the shareholding and voting rights of relevant persons throughout the year, not merely at year-end. 3. Identify concerns in which significant shareholders have the prescribed interest. 4. Trace each payment date and amount. 5. Compute accumulated profits at the relevant point and document the basis. 6. Test statutory exclusions, including genuine money-lending business situations where applicable. 7. Reconcile the final reportable amount with the return and supporting schedules. 8. Retain board records, loan agreements, bank statements and shareholding evidence in the audit file.

Worked example

Assume a closely held company has accumulated profits of ₹18 lakh and advances ₹30 lakh to a qualifying significant shareholder during FY 2025-26. If all other section 2(22)(e) conditions are satisfied and no exclusion applies, the deemed-dividend exposure is ordinarily constrained by the accumulated-profits ceiling rather than automatically equalling the full ₹30 lakh advance. The audit file should show both the transaction amount and the accumulated-profits computation supporting the reported figure.

Common errors to avoid

Do not report every director loan mechanically. Do not rely only on the closing balance when the provision can turn on payments made during the year. Do not ignore indirect concern structures. Do not use current-year profit or reserves figures without documenting the accumulated-profits analysis required by law. And do not allow Form 3CD and the income-tax return to carry inconsistent section 2(22)(e) amounts without a documented reason.

Pre-filing checklist

Confirm the payer-company status; obtain the shareholder and voting-right register; map connected concerns; scan loan and advance ledgers; test each material payment; compute accumulated profits; document exclusions; reconcile Clause 36A with the return; and retain the evidence supporting the conclusion.

Frequently asked questions

Does every loan to a director become deemed dividend?

No. The statutory shareholder, company, transaction and accumulated-profit conditions must be tested. A director designation by itself is not the test.

Is the entire loan always taxable?

Not necessarily. Even where section 2(22)(e) applies, the deemed-dividend amount is subject to the statutory accumulated-profits limitation and the facts of the transaction.

Why should the tax-return team review Clause 36A?

Because the Income Tax Department’s AY 2026-27 validation framework expressly links section 2(22)(e) dividend reporting with Form 3CD Clause 36A. A mismatch can create avoidable validation, scrutiny or reconciliation issues.

Professional takeaway

Clause 36A is best treated as a corporate-relationship and transaction-testing exercise, not a year-end balance disclosure. PGT & Associates assists businesses with tax-audit reconciliations, shareholder/related-party transaction reviews and Form 3CD readiness. For a fact-specific review, contact the firm through the website enquiry page.

Primary references

Income Tax Department: AY 2026-27 ITR-3 Validation Rules and current Form 3CA-3CD / 3CB-3CD guidance. ICAI: Guidance Note on Tax Audit under section 44AB (Revised 2026).

Disclaimer: This article is for general professional information only and is not legal or tax advice. Section 2(22)(e) outcomes are fact-sensitive; obtain advice based on the specific shareholding, transaction history and financial records.