The Income-tax (Eighth Amendment) Rules, 2025, introduced by the Central Board of Direct Taxes (CBDT), bring significant updates to Form No. 3CD and compliance requirements under the Income-tax Act. These changes, effective from April 1, 2025, include the addition of new clauses related to Micro, Small, and Medium Enterprises (MSMEs), updates to loan and deposit reporting formats, and the introduction of a new section for buyback of shares.
The amendment also removes outdated sections and streamlines the reporting process with new codes for payments and receipts. Businesses must adjust their reporting practices to ensure compliance with these updates, which aim to enhance transparency and simplify the taxation process.
The Income-tax (Eighth Amendment) Rules, 2025 are an essential update to the existing framework under the Income-tax Act, 1961. This amendment has been introduced by the Central Board of Direct Taxes (CBDT) and will come into force starting April 1, 2025. As per these new rules, there are several significant changes that directly impact the reporting structure, specifically in Form No. 3CD and related annexures. These updates aim to enhance transparency, simplify compliance, and address the evolving needs of taxpayers and tax authorities. The changes are pivotal for businesses and individuals to understand for accurate reporting and compliance.
| Section/Clause | Amendment/Update |
|---|---|
| Short Title & Commencement | – The rules are called Income-tax (Eighth Amendment) Rules, 2025. – Effective from April 1, 2025. |
| Form No. 3CD (Appendix II) | Clause (12): Insertion of “44BBC” after “44BBB”. |
| Clause (19): Removal of rows for “32AC”, “32AD”, “35AC”, “35CCB”. | |
| Clause (21): Addition of row for “Expenditure incurred to settle proceedings under notified laws”. | |
| Clause (22) | Updates related to the MSMED Act: (i) Interest inadmissible under section 23 of MSMED Act. (ii) Amount to be paid to micro/small enterprises. |
| Clause (26) | (i) Removal of certain references. (ii) Change of “allowed” to “allowable”. |
| (iii) Updates for reporting certain liabilities under section 43B. | |
| Clauses (28) & (29) | These clauses are omitted. |
| Clause (31) | Updates in reporting of loans, deposits, and repayments: – Dropdown for the nature of the amounts (e.g., Cash payment, Transfer of asset). |
| New Note (Note 1) | Introduction of codes for nature of payments/receipts/repayments: – Code examples: 1. Cash payment (A), 2. Non-account payee cheque (C), 3. Transfer of asset (E), etc. |
| Clause (36B) | New addition regarding buyback of shares: – Questions on amount received and cost of acquisition for share buybacks. |
Update Reporting for MSMEs, loans, and Share Buybacks
The major changes brought in by the amendment primarily affect the form used for audit reports under section 44AB of the Income-tax Act. Form No. 3CD, which is used for reporting various financial details, has undergone a revision. For example, Clause (12) has introduced an update that includes 44BBC alongside 44BBB. Another notable change is in Clause (19), where the rows related to specific sections like 32AC, 32AD, 35AC, and 35CCB have been removed, making the reporting more streamlined and focused on relevant areas.
The most impactful change for businesses comes under Clause (22), which now mandates the inclusion of payments related to Micro, Small, and Medium Enterprises (MSMEs). Specifically, this includes detailing interest inadmissible under the Micro, Small, and Medium Enterprises Development (MSMED) Act and amounts owed to these entities during the previous year. The amendment brings the MSMED Act’s compliance into sharper focus, making it essential for businesses to track their payments to MSMEs diligently.
One of the more comprehensive updates is found in Clause (31), which revises the way loans, deposits, and repayments are to be reported. The new format provides a dropdown option for the nature of these transactions—whether cash, asset transfers, or other modes—making the reporting process more organized and transparent. This change is critical for businesses to avoid mistakes that could lead to scrutiny from the tax authorities.
Additionally, Clause (36B) introduces a new section requiring companies to report if they have received any amounts related to the buyback of shares. This addition is crucial, as it helps the authorities track transactions related to corporate restructuring and shareholder returns, ensuring proper taxation of buybacks.
The following table highlights the critical dates for compliance with the Income-tax (Eighth Amendment) Rules, 2025:
| Event | Date |
|---|---|
| Notification Issued | March 28, 2025 |
| Amendments Come Into Effect | April 1, 2025 |
As you can see, these rules are set to come into effect on April 1, 2025, giving taxpayers and tax professionals a brief window to familiarize themselves with the changes. AUBSP strongly recommends that businesses start reviewing their existing reporting processes and adjust them in anticipation of these amendments. Delaying this could lead to errors in filing, which might attract penalties or issues with tax authorities.
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FAQs on Income-tax (Eighth Amendment) Rules 2025
1. What is the Income-tax (Eighth Amendment) Rules, 2025?
The Income-tax (Eighth Amendment) Rules, 2025, are updates to the Income-tax Rules, 1962, issued by the Central Board of Direct Taxes (CBDT). These changes affect various compliance and reporting mechanisms under the Income-tax Act, particularly in Form No. 3CD.
2. When will the Income-tax (Eighth Amendment) Rules, 2025 come into effect?
The Income-tax (Eighth Amendment) Rules, 2025 will come into force on April 1, 2025.
3. What changes were made to Form No. 3CD under the new rules?
Key changes to Form No. 3CD include:
- Addition of the figure “44BBC” alongside “44BBB”.
- Removal of rows for sections like 32AC, 32AD, 35AC, and 35CCB.
- Introduction of new clauses related to the MSMED Act, buybacks of shares, and streamlined loan and deposit reporting.
4. How do the amendments impact MSMEs?
The amendments require reporting of interest inadmissible under the MSMED Act and amounts owed to Micro, Small, and Medium Enterprises (MSMEs) during the previous year.
5. What is the new reporting format for loans, deposits, and repayments?
The amendment revises Clause (31) to include a dropdown for categorizing the nature of loans, deposits, and repayments (e.g., Cash payment, Non-account payee cheque, Asset transfer, etc.).
6. What are the key changes in the buyback of shares reporting?
Under Clause (36B), businesses must report whether they have received amounts for the buyback of shares and provide details like the amount received and the cost of acquisition of the shares.
7. How does the code system work in the new rules?
A new Note 1 introduces a code system to categorize the nature of payments, receipts, and repayments (e.g., A for Cash payment, C for Non-account payee cheque, E for Transfer of asset).
8. What are the omitted clauses in the new rules?
Clauses (28) and (29) have been omitted in the Income-tax (Eighth Amendment) Rules, 2025.
9. Why were some sections removed, like 32AC, 32AD, 35AC, and 35CCB?
These sections were removed as they were deemed outdated or irrelevant for the current reporting needs under the Income-tax Act. The removal simplifies the reporting process.
10. Do businesses need to make immediate changes to their reporting systems?
Yes, businesses must adjust their reporting systems and financial records to comply with the new requirements by April 1, 2025 to ensure smooth tax filings and avoid penalties.
11. How will the new rules affect compliance for businesses?
The new rules aim to simplify and streamline compliance by introducing clearer categories for reporting, especially concerning MSMEs, loans, and share buybacks. However, businesses need to be diligent in updating their reporting systems to avoid errors.
12. What penalties are there for non-compliance with the new rules?
Penalties for non-compliance include interest on delayed payments, penalties for incorrect reporting, and potential scrutiny from tax authorities. It’s essential for businesses to ensure all forms are accurately filled and submitted on time.
13. Are there any changes related to Section 43B in the new rules?
Yes, the amendments revise how certain liabilities under Section 43B are reported. Clause (26) introduces updates to how the allowable amounts are recorded.
14. Will the new rules affect tax audits?
Yes, the updates to Form No. 3CD are relevant for tax audits as they provide revised formats for reporting financial data, including loans, MSME payments, and share buybacks.
15. Do these rules apply to all taxpayers?
The Income-tax (Eighth Amendment) Rules, 2025 primarily affect businesses and individuals subject to tax audits under Section 44AB. Taxpayers not required to file under this section may not be impacted directly.
16. What is the importance of Clause (22) in the new rules?
Clause (22) focuses on the MSMED Act and requires businesses to report payments to micro/small enterprises, including interest inadmissible under the Act, providing more transparency in business dealings with MSMEs.
17. How should companies handle the new buyback reporting in Clause (36B)?
Companies involved in share buybacks need to report whether they received any amounts for buyback of shares and provide specific details, including the amount received and cost of acquisition of the shares, ensuring full compliance with the rules.
18. Will businesses need to file additional forms or documents for compliance?
While there are no new forms introduced, businesses will need to update their Form No. 3CD filings to incorporate the new reporting requirements and ensure compliance with the changes introduced by the amendment.
19. Can businesses expect further amendments in the future?
It is possible that the government may continue to amend tax rules to keep up with changing economic conditions, technology, and international standards. Businesses should stay updated on future notifications from the CBDT.
20. How can businesses prepare for these changes?
Businesses should begin reviewing their current reporting practices and financial records, particularly concerning MSME payments, loan details, and share buybacks. Consulting a tax professional will help ensure smooth transition and compliance with the new rules by April 1, 2025.
AUBSP strongly recommends that businesses, especially those dealing with MSMEs and share buybacks, carefully assess their existing procedures to ensure they are fully compliant with the new rules. The changes outlined above are designed to simplify and streamline the reporting process, but they also impose stricter compliance requirements in certain areas.
To ensure that you are prepared, it would be wise to consult with tax professionals who can guide you through these updates and help you adjust your systems accordingly. By acting early, you can avoid any last-minute compliance issues and ensure smooth financial reporting starting from April 1, 2025.
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