Key changes in 3CD Filings wef. 01-04-2025

CBDT has issued key amendments to Form3CD by notifying the IT (Eighth Amendment) Rules, 2025, through Notification No.23/2025 Dated March 28, 2025.

Amendments will apply from tax year 2024-25 [Assessment year (AY) 2025-26] onwards.

Summary Table

Clause 21 – Expanded Reporting of Disallowable Expenditures

• Required reporting of expenditures like penalties, fines, or compounding costs for violations of laws (Indian or foreign) under Section 37(1).
• Adds a new row to disclose expenditure incurred to settle proceedings related to contraventions under laws notified by the Central Government.
• Enhances transparency by mandating specific reporting of settlement costs, ensuring scrutiny of non-deductible expenses.

Clause 12 – Reporting profits under presumptive taxation schemes

General Applicability:

Clause 12 of the Tax Audit Report deals with reporting profits and gains computed under presumptive taxation schemes as prescribed under Chapter IV of the Income-tax Act.

The major sections covered under this clause include:

• Section 44AD – Presumptive taxation for eligible businesses
• Section 44ADA –Presumptive taxation for specified professionals
• Section 44AE –Presumptive taxation for transporters
• Section 44B / 44BB – Presumptive taxation for certain non-residents
• Section 44BBA / 44BBB – Presumptive taxation for foreign entities engaged in specific activities.

Industry-Specific Applicability:

These sections apply to various industries, including:

• A new industry-specific provision has been introduced under Section 44BBC, applicable to non-resident cruise ship operators engaged in passenger carriage.

Key features:

• Deemed income: 20% of gross receipts from passenger carriage is treated as taxable income
• Applicability: Non-resident entities operating cruise ships

Impact / Remarks

• Improves reporting of tourism & cruise industry income
• Reduces under-reporting risks
• Provides certainty and clarity in taxation for non-resident operators

Amendment applicability:

With effect from 1 April 2025, Clause 12 has been expanded to include Section 44BBC, thereby widening the scope of presumptive income reporting.

Clause 19 – Inclusion of Section 35ABA (Spectrum Amortization)

General Applicability

Clause 19 of the Tax Audit Report deals with deductions and amortisation of specified capital expenditures under the Income-tax Act.

Key changes under Clause 19:

References to deductions under the following sections have been omitted due to expiry or obsolescence:

• Section 32AC – Investment in new plant and machinery
• Section 32AD – Investment in backward areas
• Section 35AC – Expenditure on health, education, and infrastructure
• Section 35CCB – Agro-based development programmes
• Sections 80IB, 80IC, and 80ID – Specified industrial undertakings

Impact of the amendment:

• Removes outdated and inoperative provisions from reporting requirements
• Simplifies tax audit disclosures
• Aligns Form 3CD with the current provisions of the Income-tax Act

Industry-Specific Applicability

Section 35ABA – Spectrum Amortization (Telecommunication Industry)

Applicability:

• Telecom service providers acquiring spectrum usage rights

Tax treatment:

• Capital expenditure incurred for spectrum acquisition
• Allowed as a deduction by way of amortisation over the useful life of the spectrum
• Amortisation to be claimed as per Income-tax Act provisions

Status under Clause 19:

• No change to Section 35ABA
• Continued mandatory reporting of spectrum-related capital expenditure

Industry Impact:

• Ensures consistency in tax treatment for telecom operators
• Provides clarity and certainty for long-term infrastructure investments

Clause 22 – Reporting Under Section 43B(h) and MSMED Act

Purpose:

Clause 22 of Form 3CD has been introduced to ensure compliance with Section 43B(h) of the Income Tax Act, 1961, which specifically governs payments to Micro and Small Enterprises (MSEs) registered under the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006.

Section 43B(h) – Overview:

As per this provision, any amount payable to a micro or small enterprise towards the supply of goods or services shall be allowed as a deduction only if it is actually paid within the time limit specified under Section 15 of the MSMED Act (i.e., within 15 days, or 45 days if a written agreement exists).

• If the payment is made after the due date, the deduction shall be allowed only in the year of actual payment, not in the year of accrual.

Interest Disallowance – Section 23 of MSMED Act:

Interest payable on delayed payments to MSEs as per Section 23 of the MSMED Act is not allowable as an expense under the Income Tax Act and must be reported separately.

Recent Amendments & Disclosure Requirements:

Clause 22 has been substituted to mandate more detailed disclosures, including:

• IInterest disallowed under Section 23 of the MSMED Act.
• Outstanding dues to MSEs under Section 15 of the MSMED Act.
• Delayed payments and related interest liability.
• Amounts disallowed under Section 43B(h) due to non-payment within the prescribed time.

Key Reporting Requirements in Clause 22:

• Total outstanding payable to Micro and Small Enterprises as of the balance sheet date.
• Of the above, amounts not paid within the time limit under MSMED Act.
• Corresponding disallowable amounts under Section 43B(h)
• Details of interest payable/disallowed under Section 23.

Significance:

This clause enforces stricter compliance with MSME payment norms, ensuring timely payments and discouraging unjustified deductions. It enables tax authorities to track delays and enforce interest disallowances where applicable, thus strengthening accountability towards MSEs.

Example:

Clause 26 – Update on Section 43B Liabilities

Pre-Amendment

• Clause 26 in Form 3CD required reporting of liabilities covered under Section 43B, including statutory payments such as taxes, duties, employer contributions (PF/ESI), interest, etc., which are deductible only on actual payment.
• The reporting focused on amounts that were “not allowed” in preceding years due to non-payment, and whether such amounts were paid or unpaid in the current year.
• Liability reporting was based on whether expenses were allowed in earlier years or in the current year, but the language created ambiguity regarding what qualifies as deductible under Section 43B.

Post-Amendment

• Wording Change: “allowed” → “allowable”
  The term “allowed” has been replaced with “allowable”, indicating that the deduction was not previously eligible due to timing of payment rather than being disallowed after allowance. This aligns with the payment-based deduction principle under Section 43B.
• Clarified Bifurcation in Reporting
  • Liabilities existing at the beginning of the year — whether paid or unpaid during the year
  • Liabilities incurred during the year — whether paid before the due date under Section 139(1) or not
• Explicit Linkage with MSME Payments (Section 43B(h))
  Payments to MSMEs not made within the prescribed time limits under the MSMED Act (e.g., 15/45 days) must be disclosed as inadmissible for deduction.
• This aligns with updated MSME payment rules under Section 43B(h), effective from 1 April 2024.

Clauses 28 & 29 – Reporting Omission of Share Transactions under Section 56(2)

• Earlier Reporting Requirement
  • Clause 28: Receipt of shares without or for inadequate consideration under Section 56(2)(viia)
  • Clause 29: Issue of shares exceeding fair market value under Section 56(2)(viib)
• Post-Amendment Change
  These clauses have been omitted entirely to simplify reporting requirements.
• The omission is likely due to redundancy, merger into other provisions, or obsolescence arising from legislative changes.

Clause 31 – Nature of Loans and Deposits Reporting

• Reporting of loans or deposits accepted or repaid (exceeding ₹20,000), including mode of transaction and compliance with Section 269SS/T.
• Introduction of 12-Category Coding System
  • Cash
  • Journal Entry
  • Asset/Liability Transfer
  • Account Payee Cheque
  • Electronic Transfer (NEFT/RTGS/IMPS)
  • Demand Draft
  • UPI Transactions
  • Credit Card Payments
  • Other digital wallets or payment gateways
  • Set-off against other liabilities
  • Foreign currency transactions
  • Others (as specified by CBDT)
• This classification helps in identifying the nature of transactions related to loans, deposits, and repayments.
• Enhances accuracy and transparency in financial reporting, aligns with digital governance, and reduces tax evasion risks.

Clause 36 – Share Buybacks under Section 2(22)(f)

• New clause introduced to report details of share buybacks under Section 2(22)(f).
• Details to be reported include:
  • Number of shares bought back
  • Amount received
  • Cost of acquisition
  • Financial impact

• It helps in increasing scrutiny of buyback transactions, ensuring compliance with deemed dividend taxation and preventing tax evasion.
• Tax Implications for Shareholders that the entire amount received from the buyback is taxable as dividend income under the head "Income from Other Sources" at the shareholder’s applicable income tax slab rate (up to 35.88% for individuals or 38.22% for foreign companies). And the acquisition cost of those bought back shares becomes a capital loss to shareholder. This capital loss can be offset against any future capital gains from sale of share or other capital gains. The shareholder can carry forward this capital loss to reduce their overall capital gains tax liability.