Changes in Tax Audit Report for AY 2026-27: 8 Form 3CD Amendments That Matter
- shubhamtulsian05
- 2 days ago
- 6 min read
Direct answer: The changes in tax audit report for AY 2026-27 are not merely cosmetic. CBDT Notification No. 23/2025 amended Form 3CD from 1 April 2025, affecting MSME reporting, Section 43B disclosures, loan/deposit reporting, buyback reporting and several older clause references. For FY 2025-26 / AY 2026-27, taxpayers still use Form 3CA or 3CB with Form 3CD under the Income-tax Act, 1961; the ordinary tax-audit report deadline is generally 30 September 2026.
This article focuses on the changes that finance teams, tax auditors and businesses should actually build into their AY 2026-27 closing and tax-audit files.
Changes in Tax Audit Report for AY 2026-27: the 8 amendments that matter
CBDT issued the Income-tax (Eighth Amendment) Rules, 2025 through Notification No. 23/2025 dated 28 March 2025. The amendments to Form 3CD took effect from 1 April 2025, so they are directly relevant to tax audits for FY 2025-26 / AY 2026-27.
1. Clause 12 now includes Section 44BBC
Clause 12, which identifies profit included in the profit and loss account that is assessable on a presumptive basis, was amended to add Section 44BBC. Tax-audit checklists copied from older years should therefore be refreshed rather than rolled forward mechanically.
2. Clause 19 removes four legacy deduction rows
Clause 19 was rationalised by removing the rows for Sections 32AC, 32AD, 35AC and 35CCB. The practical point is simple: the current Form 3CD should drive the reporting template. Older Excel checklists can create unnecessary fields, reviewer confusion and inconsistent tax-audit documentation.
3. Clause 21 adds reporting for certain settlement expenditure
Clause 21(a) now contains a separate row for expenditure incurred to settle proceedings initiated in relation to a contravention under a law notified by the Central Government. Finance teams should therefore identify settlement payments separately from ordinary legal and professional expenses and document the statutory character of the underlying proceeding.
4. Clause 22 is substantially rewritten for MSME payments
This is one of the most operationally important Form 3CD changes for AY 2026-27. The substituted Clause 22 asks for: interest inadmissible under Section 23 of the MSMED Act; the total amount required to be paid to micro or small enterprises under Section 15 during the previous year; the amount paid within the Section 15 time limit; and the amount not paid within that time and inadmissible for the previous year.
That makes vendor classification, Udyam-status evidence, invoice acceptance dates, agreed credit periods and payment dates core tax-audit data—not merely accounts-payable information.
5. Clause 26 is updated for the current Section 43B framework
Clause 26 was amended by removing the older clause-by-clause reference to Section 43B(a) to (g), changing “allowed” to “allowable,” and expressly carving out Section 43B(h) in part of the reporting language. This aligns the form more closely with the special MSME payment rule. Section 43B itself excludes clause (h) from the ordinary return-due-date relaxation, so MSME balances should not be tested using the same year-end cure logic applied to ordinary Section 43B items.
6. Clauses 28 and 29 are omitted
CBDT omitted Clauses 28 and 29 from Form 3CD. This is another reason firms should not simply reuse an old clause index. The safest approach is to lock the tax-audit template to the current notified form and separately document any internal schedules retained for review purposes.
7. Clause 31 now requires nature codes for loans, deposits and repayments
Clause 31 was made more granular. For relevant loans, deposits, specified advances and repayments, the form now asks for a code describing the nature or mode of the amount. The notified codes cover cash payment/receipt, non-account-payee cheque transactions, transfer or conversion of assets or liabilities, journal-entry debits/credits and other debit/credit modes.
This means Clause 31 review can no longer stop at a ledger balance. The transaction mode must be mapped at line-item level and reconciled with Sections 269SS, 269T and 269ST where applicable.
8. New Clause 36B captures buyback receipts
New Clause 36B asks whether the assessee received any amount on buyback of shares referred to in Section 2(22)(f). If yes, the tax auditor must report the amount received and the cost of acquisition of the shares bought back. Investment ledgers, demat statements and corporate-action records should therefore be reviewed before Form 3CD is finalised.
Which AY 2026-27 tax audit changes deserve the most attention?
For most operating businesses, the highest-risk areas are Clauses 22, 26 and 31. They depend on transaction-level data that may not be visible from the trial balance alone. Clause 36B is highly relevant for taxpayers who participated in company buybacks, while Clause 21 becomes important where settlement or compounding-type expenditure exists.
A good tax-audit file should therefore connect Form 3CD to the underlying ERP/vendor master, MSME register, bank modes, loan ledgers, journal entries, investment records and tax computation.
Practical example: why the revised Clause 22 changes the audit workflow
Assume a company purchases services from a qualifying micro enterprise during FY 2025-26. The invoice is booked correctly, but the vendor master does not flag MSME status and the payment is made outside the time permitted by Section 15 of the MSMED Act. A year-end ledger review may show only a normal trade creditor. Under the revised Clause 22, however, the tax-audit team needs the MSME classification, the amount required to be paid, whether it was paid within the statutory period and the inadmissible amount.
The control failure is therefore not merely “late payment.” It is failure to connect procurement data, MSME evidence, invoice acceptance and payment chronology with the tax-audit report.
AY 2026-27 tax audit pre-filing checklist
Use the current notified Form 3CD rather than an old-year checklist.
Rebuild the MSME vendor population and reconcile it with Clause 22 and Section 43B(h).
Separate settlement expenditure that may fall within the new Clause 21 row.
Map Clause 31 transactions to the notified nature codes.
Review journal entries and non-account-payee modes, not just cash transactions.
Scan investment and demat records for buyback receipts reportable in Clause 36B.
Remove legacy Clause 19 rows and omitted Clauses 28/29 from working templates.
Reconcile final Form 3CD disclosures with the tax computation and ITR before upload.
AY 2026-27 transition: do Forms 3CA, 3CB and 3CD still apply?
Yes. The Income Tax Department has clarified that income earned in FY 2025-26 is assessed for AY 2026-27 under the Income-tax Act, 1961. Accordingly, tax-audit reports for this year continue under the existing Form 3CA/3CB with Form 3CD framework even though the Income Tax Act, 2025 is already in force from 1 April 2026.
For ordinary tax-audit cases, the report is generally due by 30 September 2026. Transfer-pricing cases have a different reporting timeline and should be reviewed separately.
Related PGT & Associates tax audit resources
For the broader filing framework, see our Tax Audit AY 2026-27: Form 3CA/3CB/3CD & 30 September Deadline. For a clause-by-clause map, see Tax Audit Clauses for AY 2026-27. For the MSME-specific issue, see our Form 3CD Clause 22 / Section 43B(h) guide.
FAQs on changes in tax audit report for AY 2026-27
Were Form 3CD changes made effective from 1 April 2025?
Yes. Notification No. 23/2025 states that the Income-tax (Eighth Amendment) Rules, 2025 came into force on 1 April 2025.
Are Clauses 28 and 29 still part of Form 3CD?
No. Notification No. 23/2025 omitted Clauses 28 and 29.
Is Clause 36B new?
Yes. Clause 36B was inserted to report specified buyback receipts and the cost of acquisition of the shares bought back.
What is the normal tax audit report due date for AY 2026-27?
For ordinary tax-audit cases it is generally 30 September 2026. Cases involving the transfer-pricing reporting framework should separately test the applicable 31 October timeline.
Practical takeaway
The real risk in the AY 2026-27 Form 3CD changes is not remembering new clause numbers; it is continuing to use old data flows. MSME ageing, transaction modes, settlement payments and buyback records now need to reach the tax-audit working papers early enough for verification and reconciliation.
PGT & Associates assists businesses with tax-audit readiness, Form 3CD reconciliations and year-end compliance reviews. A pre-filing review is most useful before the audit file is locked, when vendor, ledger and supporting-document gaps can still be corrected efficiently.
Primary sources
Disclaimer: This article is for general professional information only and does not constitute tax, legal or accounting advice. Applicability depends on the taxpayer's facts, transactions and the law in force on the relevant filing date.
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