Navigating the Revised Tax Audit Framework for 2025
The Institute of Chartered Accountants of India (ICAI) has released its Revised (2025) Guidance Note on Tax Audit, introducing significant updates to align with continuous legislative changes and evolving practices in income tax law. These revisions will profoundly impact our professional responsibilities, demanding enhanced technical expertise and sound professional judgment.
Here's a snapshot of the key changes and their implications:
1. Updated Reporting Requirements in Form No. 3CD:
Clause 8A (Option for Special Tax Regimes): Now includes reporting for Section 115BAE (for new manufacturing co-operative societies) from A.Y. 2024-25. Auditors must verify the filing of relevant forms like 10-IF or 10-IFA.
Clause 12 (Presumptive Basis Income): Section 44ADA was included from A.Y. 2024-25, and Section 44BBC(cruise ships, non-residents) from A.Y. 2025-26. The insertion of Section 44BBD (qualifying shipping companies) effective from A.Y. 2026-27 is also noted. This widens the scope for presumptive income reporting.
Clause 21(a) (Inadmissible Expenses): Continues detailed reporting for expenses that are an offence or prohibited by law, penalties for law violations (India or outside India), amounts to compound an offence, or benefits/perquisites whose acceptance violates any law/rule/regulation/guideline. This demands thorough verification of the nature of such expenses, aligning with Explanation 3 to Section 37.
Clause 22 (MSMED Act & Section 43B(h)): Further amended from 1st April 2025, requiring extensive reporting on inadmissible interest under Section 23 of the MSMED Act and amounts payable to Micro and Small Enterprises. Crucially, the benefit of paying by the ITR due date (first proviso to Section 43B) does not apply to payments under clause (h), making any payment beyond MSMED Act Section 15 timelines inadmissible. New MSME classification criteria from 1st April 2025 (for A.Y. 2026-27 onwards) also apply.
Clause 26 (Section 43B Payments): From 1st April 2025, "allowed" replaced with "allowable," clarifying that sums previously not allowed due to Section 43B can now be allowed upon actual payment. Reaffirms that the due date benefit does not apply to MSME payments.
Clause 31 (Loans, Deposits, Specified Sums): A new Note 1 introduces specific codes for the "nature of amount/receipt/repayment." This broadens reporting beyond cash/cheque to include journal entries, transfers of assets/liabilities, or conversions exceeding thresholds.
Clause 36B (Buyback of Shares): A newly inserted clause from 1st April 2025 (A.Y. 2025-26), requiring reporting of amounts received for buyback of shares (as per Section 2(22)(f)) for buybacks completed on or after 1st October 2024, including acquisition cost.
Omission of Clauses: Clauses 28 and 29 have been omitted from Form No. 3CD.
2. Broader Compliance Changes:
Tax Audit Assignment Limits: From 1st April 2026, the 60-tax audit assignment ceiling for CAs will be computed based on a Financial Year instead of an "Assessment Year". This will be an overall cap for individual members, including reports signed as a proprietor and/or as a partner of any firm(s). Audits under sections 44AD, 44ADA, and 44AE remain excluded.
UDIN Generation & Updating: CAs must now generate and update the UDIN on the e-filing portal within 60 calendar days from the report submission date if unable to do so earlier.
Revision of Tax Audit Reports: Revisions must be made by the same tax auditor who issued the original report, and a new UDIN must be generated and updated on the portal for each revision.
TCS/TDS Provisions: Section 206C(1H) (TCS) is no longer applicable from 1st April 2025. Similarly, Sections 206AB and 206CCA (higher TDS/TCS rates) have been omitted from 1st April 2025.
These changes underscore the dynamic nature of tax regulations and our crucial role in ensuring robust compliance. Let's stay vigilant and informed to uphold our professional standards!
Consultant @R N J & CO | Hansraj ‘22
1wGreat insight Sir!