Draft Form 26 under Income-tax Act, 2025 – A Structural Shift in Tax Audit Reporting

Redefining the Tax Audit Framework – Structural Changes & Professional Impact for CAs

The Draft Form No. 26, prescribed under Section 63 of the Income-tax Act, 2025, replaces the existing Forms 3CA/3CB and 3CD.

This is not a mere consolidation — it marks a decisive shift from clause-based disclosure reporting to structured, computation-driven, and system-aligned compliance certification.

1️⃣ Integrated Tax & Statutory Audit Reporting

Form 26 directly links tax reporting with statutory audit observations. The auditor is now required to:

•Confirm whether audit qualifications impact income or loss

•Quantify the financial effect of such qualifications

•Categorize observations (test-check basis / management representation / unable to verify)

🔎 Professional Impact:

Tax implications of audit remarks must now be numerically demonstrated. This increases accountability wherever qualifications exist in financial statements.

2️⃣ Shift from Clause-Based Disclosure to Structured Schedules

Instead of narrative clauses like Form 3CD, Draft Form 26 adopts detailed schedules covering:

•Accounting policies & ICDS adjustments

•Computation of income & disallowances

•Prior period items

•Depreciation & loss tracking

•International taxation

•TDS/TCS analytics

•GST and quantitative disclosures

🔎 Professional Impact:

The focus shifts from explaining disclosures to substantiating computations. Working papers must be reconciliation-ready and defensible.

3️⃣ Mandatory ICDS Quantification & Profit Impact Reporting

Each ICDS adjustment must be:

•Reported standard-wise

•Quantified as increase/decrease in profit

•Reflected with net impact disclosure

🔎 Professional Impact:

Interpretation-driven areas now require precise computation and strong documentation.

4️⃣ Digital Infrastructure & System Compliance Reporting

The draft introduces disclosure relating to:

•Accounting software used

•Cloud storage and backup locations

•Compliance with prescribed system rules

🔎 Professional Impact:

Tax audit now extends into digital governance and data validation. The IT ecosystem becomes part of compliance review.

5️⃣ Advanced Disallowance & TDS Compliance Analytics

Form 26 requires structured reporting of:

•Section-wise expense disallowances

•PAN-linked related party transactions

•Detailed TDS/TCS reconciliation

•Quantified 30% / 100% disallowances

🔎 Professional Impact:

Automated mismatch detection becomes easier. Pre-certification reconciliation of GST, AIS, and TDS data will be critical.

📊 The Larger Compliance Shift

🎯 Conclusion

Draft Form 26 transforms tax audit from descriptive compliance reporting to structured, data-backed validation. Practicing Chartered Accountants must adopt enhanced analytical rigor, strong reconciliation discipline, and robust documentation practices.

Corporate Genie continues to closely track these regulatory developments to assist businesses and professionals in ensuring a smooth transition to the new tax audit regime.

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