Items Reportable in Tax Audit Report & Key Clauses of Form 3CD [Checklist Here]

Purpose and Applicability

Form 3CA is applicable when the assessee is required to get the accounts audited under any other law such as the Companies Act or LLP Act. Form 3CB is applicable when there is no requirement of audit under any other law. In both cases, Form 3CD acts as an annexure containing detailed disclosures on financial, statutory, and tax-related information.

The Tax Audit Report (TAR) serves two purposes: it promotes accuracy in tax computation and ensures that the taxpayer’s financial reporting aligns with the law’s transparency and disclosure standards.

Clause-wise Reporting in Form 3CD

The Finance Act, 2025 has further refined the reporting requirements under Form 3CD to align them with the evolving digital ecosystem and cross-verification systems under the Income Tax and GST frameworks. The key reporting areas are as follows:

1. Basic Information (Clauses 1-8)

These clauses require the auditor to furnish fundamental details such as the assessee’s name, address, PAN/Aadhaar, assessment year, and the nature of the audit conducted under Section 44AB. The auditor must also specify whether the audit pertains to a business or profession and the relevant clause invoked.

2. Nature of Business and Accounting (Clauses 9-13)

These clauses focus on disclosing the nature of the business or profession and any changes made during the year. The auditor must confirm the maintenance of prescribed books of account under Section 44AA and compliance with Income Computation and Disclosure Standards (ICDS).

It also includes details of the accounting methods followed under Section 145A, valuation of inventory, and any deviations in accounting practices that may impact the computation of income.

3. Income, Deductions, and Adjustments (Clauses 14-25)

This section of the report ensures that all significant adjustments and deductions are disclosed. It includes the valuation of closing stock, treatment of capital assets converted into stock-in-trade, details of depreciation (Clause 18), and reporting of inadmissible expenses under Sections 40(a), 43B, 69, and 92E.

The auditor must report any expenditure not allowable under the Act, such as payments to employees, related party transactions, or interest disallowances, thereby ensuring transparency in income computation.

4. Statutory Liabilities and Related Party Transactions (Clauses 26-31)

The reporting under these clauses deals with statutory payments and transactions governed by the Income-tax Act. It includes compliance with Section 43B (allowance of deductions only on actual payment), details of GST input tax credit (ITC) utilization, and information on any violations of Sections 269SS and 269T concerning acceptance and repayment of loans or deposits in cash.

It also covers cash receipts or payments in excess of prescribed limits under Sections 269ST and 269SU.

5. Losses, Deductions, and TDS Compliance (Clauses 32-34)

Auditors are required to report on the carry forward and set-off of losses, deductions claimed under various provisions, and speculative transactions governed by Sections 73 and 74.

This section also ensures that tax has been correctly deducted and remitted under TDS/TCS provisions, and interest under Sections 201(1A) and 206C(7) is duly accounted for, where applicable.

6. Quantitative Details and Audit Information (Clauses 35-44)

These clauses demand quantitative details of goods traded, manufactured, or produced by the assessee. They include disclosures on dividend income, buyback transactions (Clauses 36A and 36B), and details of cost or excise audit reports.

The most significant reporting requirement under this part is Clause 44, which mandates a breakup of total expenditure into components relating to GST-registered and unregistered entities. This clause serves as a crucial data bridge between GST returns and income tax audit disclosures, ensuring synchronization and preventing double reporting or omission of costs.

Relevance of Clause 44

Clause 44 remains one of the most debated yet essential aspects of the Tax Audit Report. It ensures transparency in expenditure classification and strengthens the linkage between direct and indirect tax systems.

By requiring segregation of expenses based on GST registration status, Clause 44 provides the department with a comprehensive overview of how business costs align with GST compliance and reporting.

Significance of the Tax Audit Report

The Tax Audit Report is more than a statutory compliance requirement. It plays a vital role in ensuring financial discipline, preventing revenue leakages, and promoting data-driven tax administration.

With the continued expansion of digital reporting and analytics under the Finance Act, 2025, the government aims to integrate tax systems more effectively through automated verification, cross-referencing with GST data, and AI-based scrutiny mechanisms.

The Tax Audit framework, through its detailed clause-wise reporting, stands as a cornerstone of India’s compliance infrastructure, ensuring that every transaction is properly recorded, verified, and reported in the true spirit of tax transparency.

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