Analysis of Tax Audit Clause 44 of 3CD Form for Reporting (2024)

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Updated on October 10, 2022Posted byArpit KulshresthaPosted inIncome Tax News for Taxpayer, Taxes in India 8 Minutes Read

In the current times, Clause 44 of 3CD become the ‘Buzz word’ for every professional. People are giving their views recognizing the aspect of reconciliation with indirect tax records.

Form 3CD of Tax Audit Report (TAR) was revised in July 2018 via Notification No. 33/2018 on 20.07.2018 to include Clause 44 on reporting of GST transactions as under.

Listed below are the expense breakdowns for entities enrolled or not enrolled under GST:

S.N.	The total amount of Expenditure incurred during the year	Expenditure in respect of entities registered under GST				Expenditure relating to entities not registered under GST
S.N.	The total amount of Expenditure incurred during the year	Relating to goods or services exempt from GST	Relating to entities falling under the composition scheme	Relating to other registered entities	Total payment to registered entities	Expenditure relating to entities not registered under GST
(1)	(2)	(3)	(4)	(5)	(6)	(7)

Brief Analysis of Clause 44 for Tax Audit Reporting

Irrespective of whether a taxpayer is enrolled under Goods and Service Tax or not the same clause would be needed to be reported by all the reporting taxpayers.
It needs to report the total amount of expenditure made in the former year i.e the revenue expenditure and the capital expenditure.
Depreciation under section 32, the deduction for bad debts u/s 36(1)(vii), etc. which are not expenses must not be reported beneath the same clause in any of the Columns from 3 to 7.
Schedule III to the CGST Act, 2017 has the list of activities or transactions that are treated neither as a supply of goods nor a supply of services, and hence the expenditure made for the activities is not required to be notified beneath the same clause in any of the columns from 3 to 7 For instance, Para (1) of the Schedule III covers “Services by an employee to the employer in the course of or in relation to his employment” and therefore there is no need to report the remuneration to employees.
The amount of expenditures is needed to be separated into distinct parts mentioned in columns (3) to column (7) of the table of clause 44.
Columns (3) to (6) need to report the total expenditure as reported in column (2) is attributed to GST-registered entities (i.e. procurement from registered vendors beneath GST precisely taken through GSTR-2A or GSTR 2B) and column (7) mandates to report the total expenditure as reported in column (2) is attributed for the entities unregistered with GST (i.e. procurements from unregistered vendors under GST).
The same report might be made for the entity as a whole that might get audited and as per the details in the same columns might need to get furnished via reducing the expenditure made beneath different GST registrations.

S.N.	Particulars	Analysis
1	Sr.No.	Column no.1 of the table specified the serial number, suggesting that expenditures are needed to be notified in the head-wise method. More rows could get added but no place to furnish the heading of expenditure. ICAI guidance note stated the guidance would opt via the heading of the table which begins with the words “Breakup of total expenditure” and therefore the total expenditure engaging the purchases according to the above format might be provided. It emerges that head-wise / nature-wise expenditure information would not predict in this clause.
2	The total amount of Expenditure made in the year	The total expenditure along with the purchases, and imports to be provided. The capital expenditure must be declared. Segregate reporting of the capital expenditure would assist in simple reconciliation.
3	Expenditure for entities registered under GST concerning goods or services exempt from GST	The same column needed to notify the total expenditure as notified in column (2) is concerned with goods or services exempt from GST. Additionally, the same column is needed to show the expenditure that is exempted beneath GST. For instance following expenditures are to be reported- Alcoholic liquor, petroleum crude, high-speed diesel oil, motor spirit, natural gas and aviation turbine fuel.
4	Expenditure for entities enrolled beneath GST concerned the entities that come beneath the composition scheme.	The same column is needed to report the total expenditure as mentioned in column (2) would concern the entities that come beneath the GST composition scheme. This column needs to show expenditures made with GST composition dealers. Various assessees do not secure the same details available to them. But you could use the auto-populated GSTR-9 for acknowledging the number of purchases via composition dealers. Moreover, the GSTIN of the supplier might be validated on the GST portal to find out the supplier’s status (Composition dealer or casual taxable person, etc.) but there shall be no bulk verification utility available on the GST portal or on the income tax portal.
5	Expenditure for the entities enrolled beneath GST concerning the additional enrolled entities.	The same column needs to report the total expenditure as mentioned in column (2) concerned with the entities enrolled with GST. The same column needs to show the expenditure made with the GST-enrolled dealers excluding the composition dealers. The purchase register or GSTR 3B ITC register might be used to compile the data needed for this column. Additionally, the GSTR-2A/2B report and reconciliation thereof with the ITC register are to be regarded for verification.
6	Expenditure for entities registered under GST Total payment to registered entities	The same column needs to report the payment incurred to the GST-enrolled entities in the former year. The same column shall not get edited in the tax audit report and it is the sum of amounts established in columns (3), (4), and (5); A person can say that the amount mentioned must be the amount actually furnished via the taxpayer, but its does not the case. The paid here comprises the amount liable to pay.
7	Expenditure concerned entities not registered under GST	The same column needed to report the sum of expenditure notified in column (2) corresponding to entities not registered with GST. The same column needs for the disclosure of expenditures made via unregistered individuals. The auditor might take/retain the reconciliation organized via taxpayer for verification.

More Analysis for Specific Transactions

S.N.	Transactions	Analysis
1	Stock transfers, Cross Charge or Credit distributed through ISD	The same amounts could not be engaged in the amount to be notified in Column (5) – expenditure concerned to registered entities as tax audit is taken on the grounds of PAN and not GSTIN wise. That must not be included in the purchase register or GSTR 3B ITC register. The same must not be acknowledged as the expenditure made beneath the same clause.
2	Material cost consumed specified in financials	Various assessees specify the material cost consumed rather than specifying the purchases in the financials. A person is obligated to compute the actual purchase amount acknowledging the opening stock and closing stock computation to compute the expenditure corresponding to buying.
3	The expenditure upon which the ITC would not get claimed under GST law or through the assessees	The same might happened when the taxpayer brought the materials through the enrolled entities but no ITC was claimed. For the cases indeed reporting beneath the same clause is needed. Moreover one could uphold to specify the suitable observation specifying “since No ITC claimed by the assessee, hence no reporting made under this clause.”
4	Information of expenditure concerned the goods or services which come beneath the composition scheme	In the majority of cases, the taxpayer does not maintain the records of the buying via composite dealers. In the same condition, relevant observation must be started specifying that the taxpayer does not maintain the buying records through the composite dealers, therefore the same information does not furnish in column (4) of clause 44.
5	Import of Goods on which IGST is chargeable	It could be engaged in the amount to be reported in column (7)- expenditure concerned for the unregistered entities. Relevant observation must be started specifying the amounts notified in clause 44(7) which consists of the goods imported on which the taxpayer has filed IGST.
6	Import of Services on which recipient is needed to file GST beneath RCM	It could be engaged in the amount to be notified in column (7)- expenditure concerned with the un-registered entities. Moreover, the relevant observation must be started specifying that the amounts notified in clause 44 consist of the services import where the taxpayer is mandated to file GST beneath RCM.

A reporting need in clause 44 needed the compilation along with the arrangement of the bigger information. Acknowledging its introduction and no extension stand of CBDT directed to higher efforts to the tax auditors and the taxpayers, if the accounting systems of the assessee were not made in this way.
Clause 44 has started to ensure that the information could be used via the GST Department. On the grounds of the reporting beneath the income tax act, the expenses could not be disallowed.
Beneath the name of mitigation of accomplishing business, GST audit has been removed and again by clause 44 (“Formula 44”) imposes other obligations on the tax auditor and assessee to think prior to placing the information beneath the same clause acknowledging the information availability, its reconciliation with the outer reports, and its importance in the future.

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Published by Arpit Kulshrestha

Arpit Kulshrestha seeks higher interests in financial services, taxation, GST, I-T, etc. Writes articles with depth knowledge and is extensive for the same. The resources provide effective articles for the products of SAG infotech which provides taxation and IT software. Writing from observations and researching makes his articles virtuous.View more posts

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Analysis of Tax Audit Clause 44 of 3CD Form for Reporting (2024)

FAQs

What is the detailed analysis of Clause 44 of Form 3CD? ›

Clause 44 in the Tax Audit Report (Form 3CD) is a crucial element for businesses and auditors, as it pertains to GST reporting requirements. This clause requires a breakdown of the total expenditure incurred by entities, whether registered or not under GST.

Read On ›

What is Clause 44 of tax audit disclaimer? ›

If the assessee is not in a position to give the details as required in clause 44, an appropriate disclosure/disclaimer may be made by the auditor in Form 3CA/3CB. Where the assessee has provided reason for not being able to provide details, the same may be reported, if found appropriate.

Discover More Details ›

What is the Clause 44 of tax audit clear tax? ›

Clause 44: Break-up of total expenditure of entities registered or not registered under GST. SI. No. Section 44AB of the Income tax Act, 1961, requires certain classes of taxpayers to get their accounts audited.

How do you calculate tax audit limit? ›

Who is mandatorily subject to tax audit? A taxpayer is required to have a tax audit carried out if the sales, turnover or gross receipts of business exceed Rs 1 crore and in case of profession exceed Rs 50 lakhs in the financial year.

See Details ›

How to revise a tax audit report? ›

Sub-Rule (3) of Rule 6G provides that the tax audit report furnished under this rule may be revised by the person by getting the revised report of audit from an accountant, duly signed and verified by such accountant, and furnish it before the end of the relevant assessment year for which the report pertains if there ...

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What is the tax audit report Form 3CD? ›

Form 3CD. The income tax audit Form 3CD is a detailed statement of particulars containing of 41 clauses, whereby all the details related to business and transactions, such as revenue, turnover, expenses, profits, asset-liability details, and so on are furnished by the taxpayer.

Tell Me More ›

What is the limit for 44 AD audit? ›

Budget 2023 Update

Category	Previous limits	Revised limits
Sec 44AD: For small businesses	Rs. 2 crore	Rs. 3 crore*
Sec 44ADA: For professionals like doctors, lawyers, engineers, etc.	Rs. 50 lakh	Rs. 75 lakh*

7 days ago

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What is the meaning of disclaimer audit report? ›

DISCLAIMER OF AUDIT OPINION:

The auditee provided insufficient evidence in the form of documentation on which to base an audit opinion. The lack of sufficient evidence is not confined to specific amounts, or represents a substantial portion of the information contained in the financial statements.

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What is the meaning of disclaimer in auditing? ›

Adverse or Disclaimer – the auditor concludes that the financial report is not materially correct, or that the auditor cannot conclude due to inability to gather sufficient appropriate audit evidence or multiple uncertainties. The financial report cannot be relied upon.

How to prepare Clause 44 of tax audit? ›

Clause 44: Break-up of the total expenditure of entities registered or not registered under the GST. The words used are 'total expenditure' in the heading and 'expenditure in respect of' in the heading of columns (3) to (6) of the Tabular format.

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Can you refuse a tax audit? ›

Here's what happens if you ignore the notice:

You'll have 90 days to file a petition with the U.S. Tax Court. If you still don't do anything, the IRS will end the audit and start collecting the taxes you owe. You'll also waive your appeal rights within the IRS.

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Can you avoid tax audit? ›

Have supporting documentation for any deduction on your tax return, especially those that are significant or subject to special rules, such as rental losses. You can't always avoid an audit, but thorough records that support your deductions can quickly appease most auditors.

See Details ›

How to calculate cash transactions for tax audit? ›

Criteria for Tax Audit Applicability

1 crore in a financial year. However, if cash transactions are up to 5% of the total gross payments, the threshold limit for tax audit is increased to Rs. 10 crores. This limit is applicable from FY 2020-21 onwards.

Get More Info Here ›

How to do a tax audit step by step? ›

Procedure of Tax Audit in India

Step 1: Auditor Selection. The initial stage involves choosing a tax auditor, which can be either the company's Chartered Accountant or an IRS office official.
Step 2: Form Filing and Document Submission. ...
Step 3: Document Verification by Auditor. ...
Step 4: Audit Report Preparation.

Oct 5, 2023

Can a tax audit report be revised? ›

The report of audit furnished under this rule may be revised by the person by getting revised report of audit from an accountant, duly signed and verified by such accountant, and furnish it before the end of the relevant assessment year for which the report pertains, if there is payment by such person after furnishing ...

What is the provision for doubtful debts in tax audit report? ›

The provision for doubtful debts, which is also referred to as the provision for bad debts or the provision for losses on accounts receivable, is an estimation of the amount of doubtful debt that will need to be written off during a given period.

View Details ›

What is the limit for tax audit for commission income? ›

TDS on Commission /Brokerage

TDS on commission or brokerage is to be deducted by all types of entities including individual & HUF who falls under the ambit of tax audit U/S 44AB i.e. their turnover or annual income exceeds 25 lakh and goes up to 1 crore (as applicable according to the income tax slab).

What is the clause for depreciation in tax audit? ›

Clause 18: Depreciation

The auditor should examine disclosure of the following: (a) Description of asset/block of assets. assessee, then he needs to disclose such fact in his report and draw the attention.

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What is the applicability of Clause 40 of Form 3CD? ›

Clause 40 requires reporting of the performance or capability of the business of the assessee in the form of Ratios/Parameters. This clause enables stakeholders to judge the performance of the business of the assessee by providing details for the preceding previous year.

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