"The CA handles the tax audit": What Form 3CD actually reports about your company

A founder hands the auditor a folder of invoices in early September, signs the Form 3CB certificate without reading it, and treats the tax audit as a box ticked. Eighteen months later a Section 143(2) scrutiny notice arrives quoting Clause 34 of the company's own Form 3CD — the auditor had reported a TDS short-deduction, in the company's own filed document, and nobody at the company had read it. The tax audit report is not a certificate that your books are fine. It is a 44-clause disclosure statement, signed by a Chartered Accountant, that the Income Tax Department reads as an admission by the company.

What the law actually requires

Section 44AB of the Income-tax Act, 1961 requires a tax audit where business turnover exceeds ₹1 crore in the previous year. That threshold rises to ₹10 crore where cash receipts and cash payments each do not exceed 5% of the respective totals — the digital-transactions relaxation in the proviso to Section 44AB(a). For a company carrying on a profession, the threshold is ₹50 lakh under Section 44AB(b). A company that has opted into a presumptive scheme and then declares income below the presumptive rate is caught by Section 44AB(e) regardless of turnover.

The audit produces two documents, prescribed by Rule 6G of the Income-tax Rules, 1962:

• Form 3CA — where the company is already required to be audited under another law. Every private limited company is subject to statutory audit under Section 139 of the Companies Act, 2013, so a Pvt Ltd almost always files 3CA, not 3CB.
• Form 3CB — the audit report where no other audit is mandated. This is the proprietorship and firm route. If your CA has filed 3CB for a private limited company, that is itself an error worth questioning.
• Form 3CD — the statement of particulars, annexed to whichever of 3CA or 3CB applies. This is where the 44 clauses live.

The due date under Section 44AB read with Explanation (ii) to Section 139(1) is 30 September of the assessment year for filing the audit report, with the ITR-6 following by 31 October. Where transfer pricing applies under Section 92E, both dates shift to 31 October and 30 November respectively.

Penalty under Section 271B: failure to get accounts audited or to furnish the report attracts 0.5% of total turnover or gross receipts, capped at ₹1,50,000. Section 271B is not automatic — Section 273B allows relief for reasonable cause — but the Assessing Officer's default position is to levy.

Two forward-looking changes matter now. CBDT Notification No. 23/2025 amended Form 3CD effective 1 April 2025, adding reporting under Section 44BBC (broadcasting and sports-event rights) within Clause 12, tightening Clause 22 to require reporting of interest inadmissible under Section 23 of the MSMED Act, 2006, and adding Clause 36B for share buyback proceeds. Separately, under the Income-tax Act, 2025, Form 3CD is to be replaced by Form 26 from Tax Year 2026-27 (AY 2027-28), expanding from 44 clauses to 55 — including disclosure of the cloud storage used for books of account and the IP address and country of the backup server. If your accounting stack sits on a foreign cloud, that becomes a reportable particular.

Practical implications

The clauses that generate the most scrutiny notices are a short and predictable list.

Clause 21(b) — disallowance under Section 40(a). Where TDS was deductible and not deducted, or deducted and not deposited by the due date, the auditor reports the amount. For payments to residents, 30% of that expenditure is disallowed under Section 40(a)(ia). For payments to non-residents under Section 40(a)(i), 100% is disallowed. This is a self-reported addition to income.

Clause 22 — interest under the MSMED Act. Where a company pays a registered micro or small enterprise supplier beyond 45 days, interest at three times the RBI bank rate accrues under Section 16 of the MSMED Act, and that interest is inadmissible under Section 23. Since the insertion of Section 43B(h) of the Income-tax Act by the Finance Act 2023, the principal amount itself is disallowed if unpaid at year-end for MSE suppliers. Clause 22 and Clause 26 read together are now the single most common source of additions for manufacturing and trading companies.

Clause 26 — Section 43B items. Statutory dues — GST, PF, ESI, bonus, leave encashment, interest to banks and NBFCs — are allowable only on actual payment. The auditor reports what was outstanding at year-end and whether it was paid before the Section 139(1) due date. Employee PF contributions are worse: after Checkmate Services v. CIT (Supreme Court, 2022), late deposit of the employee's share under Section 36(1)(va) is disallowed permanently, not merely deferred, and no Section 43B relief applies.

Clause 34 — TDS and TCS compliance. This is a three-part table: 34(a) reconciles tax deducted against tax deposited, 34(b) lists statements not filed or filed late, 34(c) reports interest payable under Section 201(1A). Interest runs at 1% per month for failure to deduct and 1.5% per month for failure to deposit after deduction. Late filing of a TDS statement attracts ₹200 per day under Section 234E.

Clause 44 — GST break-up of expenditure. Total expenditure must be split between entities registered and unregistered under GST, with the registered portion further broken into exempt supplies, composition-dealer supplies, and other registered supplies. The department cross-matches this against GSTR-3B, GSTR-2B and the ITR. A mismatch here is the cheapest possible trigger for a notice because the reconciliation is fully automated.

Clause 31 — cash loans and deposits. Reporting under Sections 269SS, 269ST and 269T. A cash receipt of ₹2 lakh or more attracts penalty under Section 271DA equal to 100% of the amount received. Director's cash infusions into a struggling company are the classic self-inflicted wound here.

MCA21 v3 implications. The MCA21 v3 platform now cross-references AOC-4 financial statements against ITR and GST data. A company whose Clause 26 disclosures show chronic unpaid statutory dues, while AOC-4 shows a clean balance sheet, presents an inconsistency the system flags. Directors of a company with repeated ROC defaults also face the automated disqualification trigger under Section 164(2) of the Companies Act, 2013.

Step-by-step: what to do

• Confirm which form applies. A Pvt Ltd files Form 3CA plus 3CD, because Section 139 Companies Act audit already applies. Verify your CA has not defaulted to 3CB.
• Run the TDS reconciliation before the auditor arrives. Download Form 26AS and the TRACES default summary. Reconcile every expense head against the TDS ledger. Fix short deductions by depositing tax with interest under Section 201(1A) — a voluntary payment before the audit converts a Clause 34 default into a paid-up item.
• Clear Section 43B dues before 30 September. GST, PF employer share, ESI, bonus, and bank interest paid on or before the Section 139(1) due date remain allowable. Employee PF must be paid by the EPFO due date each month — nothing you do in September fixes that.
• Pull the MSME register. Ask every vendor for Udyam registration status in writing. Identify all invoices from micro and small enterprises unpaid beyond 45 days at 31 March 2026 and pay them, or accept the Section 43B(h) disallowance.
• Reconcile Clause 44 against GST returns. Build a single expense schedule tagged by GSTIN status. Match total expenditure to the P&L, and the registered-supplier portion to GSTR-2B for the year. Resolve every variance before signing.
• Scan Clause 31 for cash movements. Any single cash receipt of ₹2 lakh or more, any cash loan or repayment above ₹20,000 — identify these now, because the penalty is 100% of the amount and there is no negotiating position.
• Read the report before you sign. Form 3CD is filed under the company's login and accepted by the director's DSC. Acceptance is an affirmation. Read Clauses 21, 22, 26, 31, 34 and 44 line by line.
• File by 30 September, ITR-6 by 31 October. The audit report must be uploaded by the CA and accepted by the company before the ITR is filed. An unaccepted report is a non-filed report.

FAQ

Does a Pvt Ltd with nil turnover need a tax audit?
No. Section 44AB is triggered by turnover crossing ₹1 crore (or ₹10 crore where cash receipts and payments are each under 5%). A dormant company with nil turnover still needs its statutory audit under Section 139 Companies Act and still files ITR-6, but no Form 3CD.

What happens if the auditor reports a disallowance in Clause 21 — is it automatic?
Practically, yes. The reported amount flows into the return computation. Contesting it later means arguing against your own filed document, which is a weak position. Fix the underlying default before the report is finalised.

Can we change auditors if we disagree with a Clause 34 disclosure?
You can, but the disclosure obligation follows the facts, not the auditor. A second CA who omits a genuine TDS default exposes both the company and himself — professional misconduct under the Chartered Accountants Act, and Section 271J penalty of ₹10,000 for furnishing incorrect information in a report.

Is the ₹1,50,000 Section 271B penalty per year or per default?
Per assessment year. It is 0.5% of turnover subject to that ceiling, levied once for the year in which the audit was not obtained or the report not furnished.

For a compliance audit of your company, visit pvtltd.co

---

See Also

• "We already have a statutory auditor": why Section 138 may still require you to appoint an internal auditor
• "We're too small for an audit": What Section 139 actually requires of every Pvt Ltd
• "We only need 15CB above 5 lakh": what the law actually requires for foreign payments in 2026