Form 3CD Clause 41 for AY 2026-27: GST Demands, Refunds & Proceedings

Direct answer: Clause 41 of Form 3CD requires the tax auditor to report demands raised or refunds 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 can make GST, customs, legacy VAT/service-tax and similar orders a tax-audit reporting issue even where the underlying dispute relates to an earlier period.

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.

Why Clause 41 matters in the AY 2026-27 tax audit

Clause 41 is easy to miss because the underlying order may sit with the indirect-tax or legal team rather than in the income-tax audit file. The reporting trigger is the demand or refund raised/issued during the previous year; it is not confined to a liability or refund relating only to FY 2025-26. A GST order received in FY 2025-26 for an older tax period can therefore require Clause 41 reporting.

What exactly must be reported?

The prescribed Form 3CD requires details of a 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 the relevant proceedings. The reporting format captures the financial year to which the matter relates, the other tax law, whether it is a demand or refund, the date, amount and remarks/proceeding context.

GST demands and refunds: the practical focus

For most businesses today, GST is the largest Clause 41 risk area. The audit team should not rely only on the general ledger. It should reconcile the GST litigation/refund register, portal orders and notices, electronic liability records, refund sanction/rejection orders, legal correspondence and year-end provisions. The objective is to identify orders issued during FY 2025-26 even if accounting recognition, payment, appeal or recovery occurs later.

Demand raised is not the same as demand paid

Clause 41 is a disclosure requirement. A demand can be reportable even when it is disputed, stayed, appealed, unpaid or provided for differently in the financial statements. The tax-audit working paper should therefore separate: order date, tax period, amount demanded, amount paid, appeal status, stay/pre-deposit status and accounting treatment.

Refund issued: do not look only at cash received

Refund reporting should be checked against the underlying order and proceeding. Where a refund is adjusted against another outstanding demand, the audit team should preserve the adjustment trail and evaluate the disclosure based on the order and facts rather than treating the absence of a bank receipt as proof that nothing occurred.

A practical Clause 41 reconciliation workflow

1. Obtain a complete litigation and refund register for GST, customs and other applicable tax laws. 2. Search for orders dated between 1 April 2025 and 31 March 2026. 3. Reconcile orders with GST portal records, legal files and finance ledgers. 4. Map each order to the financial year/tax period to which it relates. 5. Classify it as demand raised or refund issued and record the order date and amount. 6. Capture appeal, rectification, stay, pre-deposit or adjustment status in the remarks/workpaper. 7. Reconcile material items with provisions, contingent liabilities, receivables and tax expense. 8. Retain copies of the underlying orders and evidence supporting the final Clause 41 disclosure.

Example: old GST period, current-year order

Assume a company receives a GST adjudication order on 15 January 2026 raising a ₹12 lakh demand for FY 2022-23. The company files an appeal in March 2026 and pays the statutory pre-deposit. The fact that the underlying tax period is FY 2022-23 does not by itself remove the item from Clause 41: the demand order was raised during FY 2025-26. The audit file should capture the relevant year, GST law, demand type, order date, amount and proceeding/appeal status.

Common Clause 41 mistakes

Common failures include checking only the trial balance; reporting only demands that were paid; ignoring orders for older tax periods; omitting refunds because they were adjusted rather than credited to the bank; failing to reconcile legal and GST teams with finance; and confusing a notice/proposal with a final demand or refund order without examining the underlying document.

AY 2026-27 transition: Forms 3CA/3CB + 3CD still apply

The Income Tax Department confirms that FY 2025-26 / AY 2026-27 tax audits continue under the Income-tax Act, 1961 using Form 3CA or Form 3CB together with Form 3CD. The ordinary tax-audit report due date is 21 October 2026. The unified Form 26 belongs to the Income Tax Act, 2025 framework for Tax Year 2026-27, not this AY 2026-27 audit.

Pre-filing checklist for CFOs and tax auditors

Before signing Form 3CD, confirm that the GST/legal team has certified the completeness of orders; the order date falls in the correct audit year; old-period orders have not been excluded merely because they relate to earlier years; refunds and demand adjustments have been reviewed; appeal and stay status is documented; and Clause 41 agrees with financial-statement provisions/contingencies wherever relevant.

FAQs

Does Clause 41 cover a GST demand relating to an earlier year?

Yes, it can. The reporting requirement focuses on a demand raised or refund issued during the previous year. The financial year to which that demand/refund relates is separately captured.

Should a disputed GST demand be ignored until the appeal is decided?

No. Dispute or appeal status does not automatically eliminate the disclosure. Preserve the order and report the proceeding context accurately.

Is an income-tax demand reported in Clause 41?

No. Clause 41 expressly concerns tax laws other than the Income-tax Act, 1961 and Wealth-tax Act, 1957.

What is the biggest practical control?

Do not prepare Clause 41 from the ledger alone. Reconcile the tax-litigation/refund register and portal/legal records to the books before finalising Form 3CD.

Related PGT & Associates tax-audit guides

For the broader AY 2026-27 filing framework, also review our Tax Audit Season AY 2026-27 readiness checklist, Form 3CD common-mistakes guide and GST departmental-audit guide on PGT & Associates.

Professional support

PGT & Associates assists businesses with tax-audit readiness, GST-to-books reconciliation, Form 3CD reporting and litigation-document review. For a material GST demand/refund or a complex Clause 41 position, a transaction-specific review before the audit report is filed can reduce inconsistent reporting across GST, financial statements and income-tax records.

Primary sources

Income Tax Department: Items reportable in the Tax Audit Report (Form 3CD), updated for Finance Act 2026; Income Tax Department e-Filing guidance for AY 2026-27 Forms 3CA-3CD/3CB-3CD; Income Tax Department Form 3CA-3CD user guidance.

Disclaimer

This article is for general professional information and does not constitute legal, tax or audit advice. Clause 41 reporting depends on the facts, the underlying order and the applicable law. Obtain case-specific professional advice before filing or taking a litigation position.