With the significant developments over the last 12 months, the form of the tax audit report has undergone significant changes. The CBDT issued the first version of Form 3CD on 1^st April, 2017 itself. However, since then it has undergone 3 changes vide Notification No. 88/2016 dated 29^th September, 2016; Notification No. 58/2017 dated 3^rd July, 2017 and the most recent being 11^th August, 2017. This article comprehensively covers the changes made to Form 3CD compared with last year, to help auditors and management be prepared and ready to meet the filing deadline.

Changes due to ICDS

The most important changes relate to changes brought vide Notification No. 88/2016 dated 29^th September, 2016 which relate to the Income Computation and Disclosure Standards (ICDS). The Standards prescribed by the Act, as per Sec 145(2), provide that the books of accounts be prepared in compliance with ICDS. There are currently 10 ICDS issued by the CBDT, and these will apply from FY 2016-17 onwards (relevant to AY 2017-18).

The Tax Audit report now requires the Auditor to detail the adjustments to be made to the books of accounts to accomodate the impact of ICDS. These need to be quantified in ‘Clause No.13 (d)’ and ‘Clause No.13(e)’ of the Part B portion of Form 3CD. Further, the form requires the auditor to report a detailed classification of the increase/decrease in profits for each ICDS that is relevant to the Assessee for the year.

List of ICDS applicable:

An example of an adjustment due to ICDS would be as follows:

ICDS IV – Revenue Recognition, requires the Assessee to recognise interest on tax refund to be recorded only on receipt basis and not on accrual basis. However, the same might have been recorded in the books of accounts required to be maintained under the Companies Act. Here, for the purposes of Sec. 145, the Assessee will be required to adjust the same.

An additional requirement for ICDS can be found in Clause No. 13(f), which requires the Auditor to detail the disclosures under each of the ICDS Standards, in a text box format. The Auditor is allowed upto 12 lines for each ICDS.

Clause No.14(b) (deals with valuation of closing stock), though remains unchanged, would also be a refelction of the ICDS and will have to be filled with due regard to the impact of the adjustments made to the books for the purpose of ICDS.

Changes for Additional Details – TDS Details for Equalisation Levy

Since 1^st June, 2016, the Government of India has introduced a new levy through the Finance Act. The levy, termed as the Equalisation Levy, was introduced to bring to tax payments made to non-residents who acted in the Digital Space. It was found that when many Indian companies/ individuals obtained digital services, the payments were made without deducting tax. As the non-residents were not in India, nor did they have a PE in India, they were not taxed on their receipts for their digital services, for example, Netflix, Google, Facebook etc. The business models in the digital domain have created profit shifting issues and the Govt. of India, like many other countries across the world, has taken the step to tax payments made through a withholding levy. A 6% equalisation levy will be levied on payments for specified services (currently only digital marketing), if the aggregate payment exceeds Rs.1 lakh. The deduction and remittance of equalisation levy is covered u/s 40a(ib)

Clause 21 of the new Form 3CD introduces new changes that will impact the quantification of some details relating to TDS. Clause 21(b)(iii) requires a detaied breakup of

a. Payment on which equalisation levy is not deducted as per Sec. 40(a)(ib)

b. Payment on which levy has been deducted but has not been paid before due date as per Sec. 139(1) – relating to payments applicable to Sec. 40(a)(ib)

Sec. 269SS – Additional Details Required to be Reported

The provisions of Sec. 269SS have not changed; however, vide Notification no. 58/2017 dated 03/07/2017, the old clause 31 has been substituted with new clause 31, which requires the auditor to report more details about the client in the audit report (Form 3CD). Under Clause 31(b), now, the auditor is expected to report the name and address of the person the sum of money received from/accepted from, the amount and mode of such receipt – inclulding specific details of whether it has been received by cheque, demand draft or cash.

Sec. 269T – Additional Details Required

Similar to the provisions of Sec. 269SS, Sec. 269T has not changed either. However, vide Notification no. 58/2017 dated 03/07/2017, the old clause 31 has been substituted with new clause 31, which requires the auditor to report more details about the client in the audit report (Form 3CD). Under Clause 31(d), the auditor is now expected to report the name and address and PAN of the person the sum of money is paid to, the amount and mode of such payment – inclulding the specific details of whether it has been paid by cheque, demand draft or cash.