The Tax Audit Checklist, Clause by Clause: What Each One Needs, and Where It Comes From

A tax audit file fails review in one of two ways. Either a clause was answered from the wrong document, or it was answered from the right document that nobody kept a copy of.

This is the clause-wise checklist for that problem: what each clause needs, and where the number is supposed to come from.

Three kinds of clause

Sort the form once and the work plans itself.

Clauses answered from the books. Depreciation, inadmissible amounts, payments to specified persons, prior period items, ratios. The ledger is the source; the work is classification, not collection.

Clauses answered from a return somebody else filed. TDS and TCS compliance, the GST expenditure break-up, statutory dues. The number has to agree with a filed return, which means the return has to be obtained — and the acknowledgement kept.

Clauses answered from a register or a certificate. MSMED status, loans and deposits, quantitative details, the books-of-account location. These come from outside the accounting system entirely, and they are the ones that stall a file in the last week.

The clauses where the document matters most

Clause 11 — books of account. Today it asks which books are kept and where. Under Form No. 26 it asks considerably more: clause 14 of the notified form asks for the address at which the books are maintained and, where they are kept in a computer system, the details of the accounting software, the cloud or other storage with its IP address and the country, compliance with the requirements of rule 46(8), and the address of the backup server in India. That is not a question anyone answers from memory on the last day. It is a question for the client's IT contact, in week one.

Clause 18 — depreciation. CBDT's FAQ 26 confirms the shape the new form takes: assets are split between those used for less than 180 days and those used for 180 days or more, without asking for the dates of addition. The block-wise working still has to exist; the form simply stops asking for part of it.

Clause 21 — amounts inadmissible. One clause today, spread across seven in Form No. 26: expenditure relating to exempt income, disallowances under the head-of-income provisions, penalties, cash payments, deemed income, and TDS defaults each have their own clause. Splitting the working paper the same way now saves a re-cut next year.

Clause 22 — MSMED interest, and not the disallowance. This is the clause most often filled with the wrong number. Clause 22 reports the interest inadmissible under section 23 of the MSMED Act, 2006 — interest, not principal. The disallowance of the principal sum payable to a micro or small enterprise beyond its section 15 time limit is section 43B(h), and it belongs in clause 26. Form No. 26 keeps the same separation: clause 33(a) for the section 23 interest, clause 33(b) and 33(c) with clause 32 for the section 37(2) items including payments to micro and small enterprises. The computation behind clause 26 is in section 43B(h), and what the client has to disclose is in MSME reporting.

Clause 26 — sums allowed only on actual payment. Needs the payment evidence for the period up to the return filing due date for clauses (a) to (g), and does not get that relief for clause (h). Two different cut-off dates in one clause.

Clause 31 — loans, deposits and specified sums. Reported by party, by mode, with the PAN. Form No. 26 clause 45 carries it under sections 185(1), 186(1) and 188(1) of the Income-tax Act, 2025, and CBDT's FAQ 19 confirms that journal entries and other non-cash modes are reported through mode codes rather than left out. The cash limits themselves are in 269SS, 269T and 269ST.

Clause 34 — TDS and TCS. The only clause that cannot be completed from the books alone: it needs the filed statements. CBDT's FAQ 38 describes what the new form asks — the number of transactions reported and not reported after the latest correction statement, and the amount not reported. A conso file from TRACES and the books have to be put side by side, which is the reconciliation described in Form 26AS and AIS against the books.

Clause 40 — ratios. Turnover, gross profit, net profit and stock ratios for this year and last. Form No. 26 moves them to clause 8(d). The trap is consistency: the previous year's figures must be the ones reported last year, not recomputed on a new basis.

Clause 44 — expenditure by GST registration status. CBDT's FAQ 20 records a real simplification: under Form No. 26 the break-up is no longer reconciled with each expenditure entry. It remains a break-up of total expenditure between registered, unregistered and exempt suppliers, and it still has to agree with the profit and loss account in total.

Five subjects that stop being asked

Under Form No. 26 there is no clause for CENVAT or input tax credit and its treatment (3CD clause 27(a)), for an impermissible avoidance arrangement (30C), for central excise and service tax audits (38 and 39), for demands raised and refunds issued under other tax laws (41), or for the country-by-country report (43).

Worth knowing before the checklist for next season is printed, and the full clause-to-clause comparison is in Form 26 against Form 3CD.

The checklist

Two sheets: every 3CD clause with its subject, the Form No. 26 clause it becomes, what the clause needs and where it comes from, with columns for obtained, agreed and the working paper reference; and a document request list to send in week one rather than week six.

Download the tax audit clause-wise checklist (.xlsx) — free, no sign-up.

Which form, which year

CBDT's FAQ 6 settles it: Forms 3CA, 3CB and 3CD for assessment years up to 2026-27, and Form No. 26 from tax year 2026-27. A season that spans both will run two checklists, and the clause numbers are the only thing that changes — the documents behind them do not.