{"id":32793,"date":"2026-08-12T22:31:41","date_gmt":"2026-08-12T17:01:41","guid":{"rendered":"https:\/\/carajput.com\/blog\/?p=32793"},"modified":"2026-08-12T22:49:58","modified_gmt":"2026-08-12T17:19:58","slug":"icai-exposure-draft-july-2026-on-tax-audit-guidance-note","status":"publish","type":"post","link":"https:\/\/carajput.com\/blog\/icai-exposure-draft-july-2026-on-tax-audit-guidance-note\/","title":{"rendered":"ICAI Exposure Draft (July 2026) on Tax Audit Guidance Note"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_58 counter-hierarchy ez-toc-counter ez-toc-light-blue ez-toc-container-direction\">\n<p class=\"ez-toc-title\">Page Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6a7cce401afca\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #000000;color:#000000\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #000000;color:#000000\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6a7cce401afca\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/carajput.com\/blog\/icai-exposure-draft-july-2026-on-tax-audit-guidance-note\/#ICAI_Exposure_Draft_9_July_2026_on_Tax_Audit_Guidance_Note\" title=\"ICAI Exposure Draft (9 July 2026) on Tax Audit Guidance Note\">ICAI Exposure Draft (9 July 2026) on Tax Audit Guidance Note<\/a><ul class='ez-toc-list-level-3'><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/carajput.com\/blog\/icai-exposure-draft-july-2026-on-tax-audit-guidance-note\/#Transition_to_the_Income_Tax_Act_2025\" title=\" Transition to the Income Tax Act, 2025\"> Transition to the Income Tax Act, 2025<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/carajput.com\/blog\/icai-exposure-draft-july-2026-on-tax-audit-guidance-note\/#Expansion_of_%E2%80%9CGross_Receipts_in_Business%E2%80%9D\" title=\" Expansion of &#8220;Gross Receipts in Business&#8221;\"> Expansion of &#8220;Gross Receipts in Business&#8221;<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/carajput.com\/blog\/icai-exposure-draft-july-2026-on-tax-audit-guidance-note\/#DPDP_Act_2023_Compliance_Expectations\" title=\" DPDP Act, 2023 Compliance Expectations: \"> DPDP Act, 2023 Compliance Expectations: <\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/carajput.com\/blog\/icai-exposure-draft-july-2026-on-tax-audit-guidance-note\/#Tax_Audit_Assignment_Counting\" title=\" Tax Audit Assignment Counting\"> Tax Audit Assignment Counting<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/carajput.com\/blog\/icai-exposure-draft-july-2026-on-tax-audit-guidance-note\/#Revised_Management_Representation_Letter_MRL\" title=\" Revised Management Representation Letter (MRL)\"> Revised Management Representation Letter (MRL)<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/carajput.com\/blog\/icai-exposure-draft-july-2026-on-tax-audit-guidance-note\/#Enhanced_Form_3CD_Reporting_Expectations\" title=\"Enhanced Form 3CD Reporting Expectations: \">Enhanced Form 3CD Reporting Expectations: <\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/carajput.com\/blog\/icai-exposure-draft-july-2026-on-tax-audit-guidance-note\/#Enhanced_Form_3CD_Reporting_Expectations-2\" title=\"Enhanced Form 3CD Reporting Expectations\">Enhanced Form 3CD Reporting Expectations<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/carajput.com\/blog\/icai-exposure-draft-july-2026-on-tax-audit-guidance-note\/#Compliance_Implications_for_Firms\" title=\"Compliance Implications for Firms\">Compliance Implications for Firms<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/carajput.com\/blog\/icai-exposure-draft-july-2026-on-tax-audit-guidance-note\/#Conclusion\" title=\"Conclusion\">Conclusion<\/a><\/li><\/ul><\/nav><\/div>\n<h2><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-32794\" src=\"https:\/\/carajput.com\/blog\/wp-content\/uploads\/2026\/08\/EXPOSER-DRAFT-.png\" alt=\"ICAI Exposure Draft (9 July 2026) on Tax Audit Guidance Note\" width=\"859\" height=\"406\" srcset=\"https:\/\/carajput.com\/blog\/wp-content\/uploads\/2026\/08\/EXPOSER-DRAFT-.png 681w, https:\/\/carajput.com\/blog\/wp-content\/uploads\/2026\/08\/EXPOSER-DRAFT--300x142.png 300w\" sizes=\"(max-width: 859px) 100vw, 859px\" \/><\/h2>\n<h2><span class=\"ez-toc-section\" id=\"ICAI_Exposure_Draft_9_July_2026_on_Tax_Audit_Guidance_Note\"><\/span><span style=\"color: #000080;\"><strong>ICAI Exposure Draft (9 July 2026) on Tax Audit Guidance Note<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>The ICAI Direct Taxes Committee has released an exposure draft proposing revisions to the Guidance Note on Tax Audit under Section 44AB of the Income Tax Act, 1961. Comments were invited up to 25 July 2026. Importantly, this is expected to be the last Guidance Note under the 1961 Act, as the Income Tax Act, 2025, has come into force from 1 April 2026, shifting tax audit provisions to Section 63 of the new law.<\/p>\n<p><strong>Key Changes at a Glance<\/strong><\/p>\n<table>\n<tbody>\n<tr>\n<td><strong>Area<\/strong><\/td>\n<td><strong>What Has Changed?<\/strong><\/td>\n<td><strong>Impact on CAs &amp; Tax Auditors<\/strong><\/td>\n<\/tr>\n<tr>\n<td>Transition to IT Act, 2025<\/td>\n<td>Section 44AB replaced by Section 63<\/td>\n<td>Auditors must prepare for new law-based reporting<\/td>\n<\/tr>\n<tr>\n<td>VDA &amp; Carbon Credits<\/td>\n<td>Included in &#8220;gross receipts from business&#8221;<\/td>\n<td>Crypto and carbon-credit dealers may cross audit thresholds more easily<\/td>\n<\/tr>\n<tr>\n<td>DPDP Act Compliance<\/td>\n<td>New data privacy expectations<\/td>\n<td>Stronger controls over client data required<\/td>\n<\/tr>\n<tr>\n<td>Audit Assignment Counting<\/td>\n<td>Branches treated as one assignment<\/td>\n<td>Easier assignment-count computation<\/td>\n<\/tr>\n<tr>\n<td>Management Representation Letter<\/td>\n<td>Format revised<\/td>\n<td>Firms should adopt updated MRL templates<\/td>\n<\/tr>\n<tr>\n<td>Form 3CD Reporting<\/td>\n<td>Enhanced scrutiny of disclosures<\/td>\n<td>More robust audit documentation needed<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<h3><span class=\"ez-toc-section\" id=\"Transition_to_the_Income_Tax_Act_2025\"><\/span><span style=\"color: #000080;\"><strong> Transition to the Income Tax Act, 2025<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<ul>\n<li>What the Exposure Draft Says This is the final Guidance Note under the Income Tax Act, 1961. Tax audits going forward will be governed by Section 63 of the Income Tax Act, 2025. And Section 536 for transition provisions.<\/li>\n<li>Practical Impact: For most taxpayers, audit concepts remain broadly similar; existing audit thresholds largely continue. And reporting references must gradually shift from updating tax audit manuals to training audit teams on the new act numbering. And revise internal checklists and templates.<\/li>\n<\/ul>\n<h3><span class=\"ez-toc-section\" id=\"Expansion_of_%E2%80%9CGross_Receipts_in_Business%E2%80%9D\"><\/span><span style=\"color: #000080;\"><strong> Expansion of &#8220;Gross Receipts in Business&#8221;<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p><strong><span style=\"color: #000080;\">Major Change:<\/span> <\/strong>The draft specifically includes Virtual Digital Assets (VDAs) and Carbon Credits within gross business receipts where the taxpayer deals in such assets. For Example<\/p>\n<table style=\"height: 394px;\" width=\"801\">\n<tbody>\n<tr>\n<td>Business Activity<\/td>\n<td>Included in Gross Receipts?<\/td>\n<\/tr>\n<tr>\n<td>Crypto trading<\/td>\n<td>Yes<\/td>\n<\/tr>\n<tr>\n<td>NFT trading<\/td>\n<td>Yes<\/td>\n<\/tr>\n<tr>\n<td>Carbon credit trading<\/td>\n<td>Yes<\/td>\n<\/tr>\n<tr>\n<td>Tokenized carbon credits<\/td>\n<td>Yes<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p><span style=\"color: #000080;\"><strong>Clarification Given<\/strong><\/span><\/p>\n<p>The following are <strong>not<\/strong> treated as business gross receipts for audit-threshold purposes: Recovery of old bad debts already written off, Remission of liability under Section 41 and Capital receipts from sale of fixed assets not credited to P&amp;L<\/p>\n<p><strong><span style=\"color: #000080;\">Practical Impact<\/span>: <\/strong>Businesses trading in crypto assets, NFTs, and carbon credits may cross audit limits sooner due to inclusion in turnover calculations.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"DPDP_Act_2023_Compliance_Expectations\"><\/span><span style=\"color: #000080;\"><strong> DPDP Act, 2023 Compliance Expectations: <\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>New Focus Area Tax auditors routinely handle PAN details, Aadhaar details, salary information, bank account information, and personal financial records. The draft emphasizes stronger compliance with the:<\/p>\n<p><span style=\"color: #000080;\"><strong>Digital Personal Data Protection (DPDP) Act, 2023.<\/strong><\/span><\/p>\n<ul>\n<li>Expected Controls Need-to-know access, password-protected systems, secure cloud storage, data retention policies and confidentiality controls.<\/li>\n<li>Engagement Letters: Firms should update engagement letters to include data-processing clauses and privacy obligations. Confidentiality provisions, Data breach responsibilities<\/li>\n<li>Practical Impact: Tax audit quality now includes not just tax compliance but also data-governance compliance.<\/li>\n<\/ul>\n<h3><span class=\"ez-toc-section\" id=\"Tax_Audit_Assignment_Counting\"><\/span><span style=\"color: #000080;\"><strong> Tax Audit Assignment Counting<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<ul>\n<li>Clarification Issued: Branch Audits If one auditor audits one tax audit assignment, separate UDINs may be generated.<\/li>\n<li>Revised Tax Audit Where Auditor A conducted the original audit. And Auditor B performs a revised tax audit. The revised audit will count towards Auditor B&#8217;s assignment limit.<\/li>\n<li>Practical Impact of it More clarity in assignment counting, better compliance with ceiling limits, and reduced ambiguity for multi-branch entities.<\/li>\n<\/ul>\n<h3><span class=\"ez-toc-section\" id=\"Revised_Management_Representation_Letter_MRL\"><\/span><span style=\"color: #000080;\"><strong> Revised Management Representation Letter (MRL)<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>The sample MRL has been updated and aligned with: Auditing and Assurance Standards Board (AASB) format. The purpose of the MRL is to be revised. The MRL seeks management confirmation regarding the completeness of records, tax disclosures, related-party information, VDA disclosures, and carbon-credit transactions. And compliance representations. The v=basic practical impact of MRL is that firms should replace older MRL formats and use the revised ICAI-compliant version.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Enhanced_Form_3CD_Reporting_Expectations\"><\/span><span style=\"color: #000080;\"><strong>Enhanced Form 3CD Reporting Expectations: <\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>The draft expects greater scrutiny in areas such as:<\/p>\n<table style=\"height: 487px;\" width=\"799\">\n<tbody>\n<tr>\n<td><strong>Reporting Area<\/strong><\/td>\n<td><strong>Auditor Focus<\/strong><\/td>\n<\/tr>\n<tr>\n<td>VDA Turnover<\/td>\n<td>Verify inclusion in business receipts<\/td>\n<\/tr>\n<tr>\n<td>Carbon Credit Turnover<\/td>\n<td>Proper classification<\/td>\n<\/tr>\n<tr>\n<td>GST RCM Liability<\/td>\n<td>Section 43B reporting<\/td>\n<\/tr>\n<tr>\n<td>Clause 17<\/td>\n<td>Accuracy of disclosures<\/td>\n<\/tr>\n<tr>\n<td>Clause 35(a)<\/td>\n<td>Stock-related reporting<\/td>\n<\/tr>\n<tr>\n<td>Clause 38<\/td>\n<td>Tax compliance checks<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>The guidance also incorporates observations from the Tax Audit Quality Review Board (TAQRB) to reduce recurring reporting errors.<\/p>\n<div>\n<h3><span class=\"ez-toc-section\" id=\"Enhanced_Form_3CD_Reporting_Expectations-2\"><\/span><span style=\"color: #000080;\">Enhanced Form 3CD Reporting Expectations<\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>The exposure draft signals heightened scrutiny of disclosures in Form 3CD. Areas Receiving Particular Attention<\/p>\n<div class=\"___1dmoc29 f10pi13n ftgm304 f1enuhaj fdclmfp f1nbblvp fat0sn4 f1ov4xf1 fekwl8i f1lmfglv f1oz7aqm f1abmfm4 f1w619qj f16h0jq8\">\n<table class=\"___1vyiefv f1ddd56o f16vktn6 f1ahpp82 f11qra4b f1uinfot fibjyge fvueend f9yszdx f1fu4s3n f3l3pb3 f10ghnd0 f8fmt76 fjvbh62 f1qrqxae f1vw5qpk fc02sbz fxawf59 fymf513 f1aoyrul f1el8yx3 f1pymoxg f1ofu761 fe6itr f7coize f1794535 f1o0pw0q fbjjl9v fk1v6el f16pyhcb f1ixlhx9 f12zef0i flu5r5u f19haqzy f1owmcxx f1oddm8q f1004tna fcoaxci fh0ee9u f15v23i2 f1dmj53 f1r1gcv9 f14z1veh ffufd3x f1ypplot f1660cg\" style=\"height: 328px;\" width=\"926\">\n<tbody>\n<tr>\n<th>Reporting Area<\/th>\n<th>Auditor Focus<\/th>\n<\/tr>\n<tr>\n<td>VDA Turnover<\/td>\n<td>Verification of inclusion in business receipts<\/td>\n<\/tr>\n<tr>\n<td>Carbon Credit Turnover<\/td>\n<td>Proper classification and disclosure<\/td>\n<\/tr>\n<tr>\n<td>GST RCM Liability<\/td>\n<td>Accurate Section 43B reporting<\/td>\n<\/tr>\n<tr>\n<td>Clause 17<\/td>\n<td>Correct reporting and consistency<\/td>\n<\/tr>\n<tr>\n<td>Clause 35(a)<\/td>\n<td>Inventory and stock disclosures<\/td>\n<\/tr>\n<tr>\n<td>Clause 38<\/td>\n<td>Tax compliance verification<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<p>The draft also incorporates observations from the Tax Audit Quality Review Board (TAQRB) to reduce recurring reporting deficiencies.<\/p>\n<\/div>\n<h3><span class=\"ez-toc-section\" id=\"Compliance_Implications_for_Firms\"><\/span><span style=\"color: #000080;\"><strong>Compliance Implications for Firms<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<ul>\n<li>Immediate (Short-Term) Tax Audit Firms Should Update engagement letters, Revise Form 3CD checklists, Incorporate VDA and carbon-credit verification procedures, Strengthen DPDP compliance processes. Adopt the revised management representation letter format.<\/li>\n<li>Medium-Term: Firms Should Prepare For Full migration to the Income Tax Act, 2025, Section 63-based tax audit reporting and enhanced audit quality controls. And Better documentation standards for VDAs, Carbon Credits, GST reporting and Data governance<\/li>\n<\/ul>\n<div>\n<h2><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span><span style=\"color: #000080;\">Conclusion<\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>The ICAI Exposure Draft (9 July 2026) represents far more than an update to the Tax Audit Guidance Note. It serves as a transition roadmap from the Income Tax Act, 1961, to the Income Tax Act, 2025, while simultaneously raising expectations around audit quality, documentation, technology usage, and compliance governance. For chartered accountants, the most important changes are the following:<\/p>\n<\/div>\n<ol>\n<li>VDA and carbon-credit receipts now receive explicit recognition in turnover computations.<\/li>\n<li>Tax auditors must adopt DPDP-compliant data-handling practices.<\/li>\n<li>Assignment-counting rules have been clarified.<\/li>\n<li>A revised Management Representation Letter must be used.<\/li>\n<li>Form 3CD reporting will involve greater scrutiny and documentation.<\/li>\n<\/ol>\n<p>In short, the draft pushes tax audit practice towards a more technology-driven, documentation-intensive, and compliance-focused framework, particularly for emerging areas such as crypto assets, carbon credits, and digital-business transactions.<\/p>\n<p>tax audits are becoming increasingly documentation-intensive, technology-enabled, and compliance-focused, particularly in emerging sectors such as cryptocurrency, NFTs, tokenized assets, carbon credits, and digital businesses. Firms that adapt early will be better positioned to meet future regulatory expectations and audit-quality standards.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>ICAI Exposure Draft (9 July 2026) on Tax Audit Guidance Note The ICAI Direct Taxes Committee has released an exposure draft proposing revisions to the Guidance Note on Tax Audit under Section 44AB of the Income Tax Act, 1961. Comments were invited up to 25 July 2026. Importantly, this is expected to be the last &hellip;<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[117],"tags":[10530],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/carajput.com\/blog\/wp-json\/wp\/v2\/posts\/32793"}],"collection":[{"href":"https:\/\/carajput.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/carajput.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/carajput.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/carajput.com\/blog\/wp-json\/wp\/v2\/comments?post=32793"}],"version-history":[{"count":2,"href":"https:\/\/carajput.com\/blog\/wp-json\/wp\/v2\/posts\/32793\/revisions"}],"predecessor-version":[{"id":32796,"href":"https:\/\/carajput.com\/blog\/wp-json\/wp\/v2\/posts\/32793\/revisions\/32796"}],"wp:attachment":[{"href":"https:\/\/carajput.com\/blog\/wp-json\/wp\/v2\/media?parent=32793"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/carajput.com\/blog\/wp-json\/wp\/v2\/categories?post=32793"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/carajput.com\/blog\/wp-json\/wp\/v2\/tags?post=32793"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}