A Practical Guide for Financial Statements, DPT-3, and Tax Audit Compliance
Introduction
As the financial year closes on 31 March, businesses across India are busy finalizing financial statements, preparing DPT-3 filings due by 30 June, and gearing up for Tax Audit submissions by 30 September.
A frequent compliance challenge arises around related party transactions (RPTs) that were incurred before the related party relationship officially existed but remain unpaid or outstanding at the year-end.
This article explains the correct approach for disclosure of such transactions — as well as those incurred after the related party relationship is established — under the key regulatory frameworks:
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Ind AS 24 — Related Party Disclosures in Financial Statements
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DPT-3 — Return of Deposits, Loans, and Advances (Companies Act, 2013)
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Tax Audit and Transfer Pricing requirements (Income Tax Act)
Understanding and applying these rules correctly is essential to avoid regulatory penalties, audit qualifications, and mismatches across compliance filings.
1. Related Party Transactions under Ind AS 24
Ind AS 24 defines related parties broadly, including entities with control or significant influence, key managerial personnel (KMP), and close family members.
Disclosure requirement:
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All related party transactions must be disclosed in the financial statements.
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Crucially, transactions that occurred before the related party relationship arose but remain outstanding as at 31 March must also be disclosed as related party transactions.
Interpretation:
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The standard emphasizes substance over form, requiring disclosures based on the situation at the reporting date.
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If a loan or advance exists at year-end with a party that became related subsequently, it’s treated as a related party transaction.
Importance:
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This prevents under-reporting of related party exposures and ensures stakeholders have a complete picture.
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Failure to disclose may lead to audit qualifications or regulatory observations.
2. DPT-3 Filing Under the Companies Act, 2013
DPT-3 requires companies to disclose loans, deposits, and advances outstanding as on 31 March, including those given to related parties.
Key points:
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All outstanding loans/advances to related parties as on the balance sheet date must be reported in DPT-3.
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Timing of the transaction (pre or post related party relationship) does not exempt disclosure if the amount is outstanding as at 31 March.
Consequences:
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Incorrect or omitted disclosures can lead to penalties of ₹1,000 per day up to ₹10 lakhs.
3. Tax Audit and Transfer Pricing Compliance
Under the Income Tax Act:
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Companies and firms exceeding specified turnover limits must undergo tax audits.
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Tax auditors must report related party transactions and outstanding balances in Form 3CD (Clause 27).
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Transfer pricing rules require documentation for certain related party transactions to ensure they are at arm’s length.
Interpretation:
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Outstanding balances with parties who became related after the transaction date but before the year-end must be disclosed as related party transactions.
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This ensures consistency with financial reporting and DPT-3 filings.
Risks:
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Non-disclosure or incorrect reporting can result in penalties and reassessment by tax authorities.
4. Comparison Summary of Disclosure Requirements
| Compliance Aspect | Ind AS 24 (Financial Statements) | DPT-3 (Companies Act Filing) | Tax Audit & Transfer Pricing (Income Tax) |
|---|---|---|---|
| Definition of Related Party | Control, significant influence, KMP, relatives | Same as Ind AS 24 | Same + specified transactions |
| Pre-relationship Transactions | Disclose if balance outstanding at 31 March | Report if outstanding at 31 March | Disclose outstanding balances in Form 3CD |
| Post-relationship Transactions | Disclose fully | Report fully | Disclose fully |
| Penalties for Non-Compliance | Audit qualifications, regulatory action | ₹1,000/day penalty (up to ₹10 lakh) | Penalties under Sections 271AA, 271G, 92D |
5. Practical Example
Scenario:
Company A lent ₹5 crore to Company B in January 2025. The two companies became related parties in March 2025. The loan remains unpaid as of 31 March 2025.
Application:
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Ind AS 24: Disclose ₹5 crore loan as a related party transaction in financial statements, noting timing of relationship establishment.
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DPT-3: Report ₹5 crore outstanding loan under related party loans/advances.
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Tax Audit: Include ₹5 crore under related party transactions in Form 3CD.
6. Best Practices to Ensure Compliance and Avoid Defaults
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Maintain an updated related party register reflecting current relationships as at 31 March.
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Keep detailed transaction records and outstanding balances with dates and nature of transactions.
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Cross-check disclosures for consistency across financial statements, DPT-3 filing, and tax audit reports.
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Include clear explanatory notes regarding pre-relationship transactions and outstanding balances.
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Foster collaboration among finance, legal, and tax teams to harmonize interpretations and reporting.
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Seek professional advice when uncertain about complex relationships or transactions.
7. Checklist for Year-End Related Party Transaction Disclosures
| Step | Action Point | Reference/Remarks |
|---|---|---|
| 1. Identify Related Parties | Update list as per control/influence and KMP status | Ind AS 24, Companies Act, Income Tax definitions |
| 2. Review All Transactions | Check transactions and balances with identified parties | Include loans, advances, purchases, sales, fees |
| 3. Determine Transaction Timing | Categorize pre- and post-relationship transactions | Important for disclosure clarity |
| 4. Confirm Outstanding Balances | Confirm balances as at 31 March | Ind AS 24 requires disclosure if outstanding |
| 5. Prepare Financial Statement Disclosures | Disclose all RPTs and outstanding balances | Follow Ind AS 24 disclosure format |
| 6. Prepare DPT-3 Filing Data | Include all loans/deposits/advances to related parties | Submit by 30 June to MCA |
| 7. Prepare Tax Audit Report (Form 3CD) | Disclose all related party transactions and balances | Submit by 30 September to Income Tax Department |
| 8. Add Explanatory Notes | Clarify timing and nature of pre-relationship transactions | Helps auditors and tax authorities |
| 9. Review for Consistency | Cross-check all disclosures across filings and reports | Avoid mismatches that raise red flags |
| 10. Obtain Professional Review | Consult auditors or tax advisors if necessary | Ensures compliance and reduces risk |
Conclusion
For robust compliance and to avoid penalties, businesses must carefully identify and disclose all related party transactions outstanding at year-end, irrespective of whether those transactions occurred before or after the related party relationship was established.
Coordinated disclosure under Ind AS 24, DPT-3, and Tax Audit requirements ensures transparency and strengthens corporate governance.
