Key Changes in Tax Audit Report under the Income-tax Act, 2025 – Introduction of Form No. 26

With the commencement of the new tax year and the coming into force of the Income-tax Act, 2025, it is imperative for professionals to revisit the framework of tax audit reporting. One of the most significant changes is the introduction of Form No. 26, which replaces the erstwhile Forms 3CA, 3CB, and 3CD.

This transition is not merely structural rather it represents a fundamental shift in the philosophy of tax audits. The scope has moved beyond a traditional book-to-tax reconciliation exercise to a comprehensive compliance validation mechanism, requiring deeper scrutiny, enhanced disclosures, and structured reporting.

1. Unified Tax Audit Form

The introduction of a single consolidated Form No. 26 replaces:

• Form 3CA (cases subject to statutory audit)
• Form 3CB (other cases)
• Form 3CD (statement of particulars)

Objective:

• Eliminate duplication
• Ensure consistency
• Provide a unified reporting framework

2. Impact of Statutory Audit Qualifications

A significant new requirement mandates tax auditors to evaluate and disclose the impact of statutory audit remarks, including:

• Qualifications
• Adverse remarks
• Disclaimers
• Emphasis of matter
• Observations

Auditor is now required to report:

• Whether such remarks impact income, loss, or book profit
• The quantified effect of such impact
• Instances where such impact is not considered in Part D

This marks a clear shift towards analytical accountability of the tax auditor.

3. Categorization of Audit Observations

Audit observations must now be classified into:

• Test-check basis (materiality driven)
• Based on management representation
• Unable to verify
• Others

This enhances transparency and allows stakeholders to assess the depth and reliability of audit procedures.

4. Integration of UDIN

The Unique Document Identification Number (UDIN) is now embedded within the audit report itself, eliminating the earlier requirement of separate reporting/linkage.

5. Additional Notes in Certification (Part A)

Key clarifications include:

• All amounts to be reported in Indian Rupees (₹) unless otherwise specified
• Mandatory consideration of other audit reports issued under different sections while finalising the tax audit report

6. Rationalisation of Indirect Tax Disclosures

The earlier requirement to disclose indirect tax details (under Clause 4 of Form 3CD), such as:

• GST
• Excise
• Service Tax
• Customs

has been removed. This indicates a policy intent to avoid duplication with dedicated indirect tax compliance systems.

7. Enhanced Disclosures for Firms and AOPs

Additional disclosures now required include:

• PAN of partners/members
• Names and details
• Profit-sharing ratios

This strengthens traceability and transparency in non-corporate structures.

8. Reordering of Turnover Disclosure

Turnover/gross receipts are now reported at the beginning of the form, highlighting their importance as a foundational parameter for:

• Tax audit applicability
• Analytical review

9. Expanded Reporting on Books of Accounts

A major transformation is seen in reporting relating to books of accounts, especially in digital environments:

New disclosures include:

• Accounting software used
• Cloud/storage systems
• Server location (IP address and country)
• Confirmation that:
  • Books are accessible in India at all times
  • Daily backups are maintained
  • Backup servers are located in India (with address)

Additionally:

• More granular reporting of brought forward losses and depreciation

This aligns with increasing emphasis on data integrity, accessibility, and jurisdictional control.

10. Structured Layout of Form No. 26

The new form is highly structured and divided as follows:

Core Parts

• Part A – Audit Report (Companies)
• Part B – Audit Report (Non-Companies)
• Part C – Assessee Details

Part D – Detailed Reporting

Includes:

• General Information
• Books of Accounts & Accounting Method (ICDS with line-item impact)
• Income/Receipts
• Expenses
  • Statute-wise tagging
  • Separate identification of CSR, penalties, and inadmissible expenses
• Prior Period Items
• Losses, Depreciation & Deductions
• International Taxation
• Other Key Parameters (cash/loan tracking with mode, code, peak values)
• TDS/TCS
• Quantitative Details

Schedules (Granular Data Capture)

Separate schedules for:

• Income computation
• Accounting information
• International taxation
• Losses & deductions
• TDS/TCS (transaction-level reporting)
• Quantitative details

Notable International Tax Additions:

• Head office expenditure allocation
• Cross-reference to remittances reported in Form 15CA/CB

Conclusion

The introduction of Form No. 26 marks a significant evolution in tax audit reporting under the Income-tax Act, 2025. The emphasis has clearly shifted towards:

• Granular and data-driven disclosures
• Enhanced auditor responsibility
• Technology-integrated compliance
• Holistic reporting framework

For professionals, this change necessitates:

• Deeper engagement with client data
• Robust documentation practices
• Close coordination with statutory auditors

In essence, the tax audit has transitioned from a procedural compliance requirement to a comprehensive assurance and risk-evaluation exercise.