By CA Surekha Ahuja
Clause 44 takes more time to prepare than any other clause in Form 3CD, and it is the one most likely to be compared with your client's GST data. This guide shows how to complete it in hours instead of days.
1. The basics
- It is mandatory. CBDT deferred Clause 44 several times. The last deferment ended on 31.03.2022 and was not extended, so every tax audit report furnished since then must include it.
- The forms are unchanged for AY 2026-27. FY 2025-26 is still governed by the Income-tax Act, 1961, so the report is filed in Form 3CA/3CB with Form 3CD. The new Form 26 applies only from tax year 2026-27.
- What it asks for: the year's total expenditure, split by the GST status of the party paid. There are no GST-rate columns.
| Column | What goes in it |
|---|---|
| 2 | Total expenditure |
| 3 | Paid to registered parties for exempt supplies |
| 4 | Paid to composition dealers |
| 5 | Paid to other registered parties (regular tax invoices) |
| 6 | Total paid to registered parties (3 + 4 + 5) |
| 7 | Paid to unregistered parties |
2. The workflow at a glance
📊 [Insert image: Clause44_Workflow.png]
Each compiling step on the left has a matching check on the right. By the time you report a figure, it has already been tested.
3. Where each figure comes from
📊 [Insert image: Clause44_Source_Mapping.png]
| Source | What to take | Column |
|---|---|---|
| Balance sheet | Fixed asset additions (tangible and intangible) | Col 2, then classify by vendor |
| CWIP expenditure incurred during the year | Col 2, then classify by vendor | |
| Transfers from CWIP to fixed assets | Exclude (already counted when incurred) | |
| Capital advances, deposits, prepaid amounts | Exclude (not yet expenditure) | |
| P&L account | All expense heads, net of ITC availed | Col 2 control total |
| Depreciation, amortisation, provisions, write-offs | Exclude | |
| Partners' interest and remuneration, income-tax | Exclude | |
| Ledger / vendor master | Regular vendor (tax invoice) | Col 5 |
| Composition dealer (bill of supply) | Col 4 | |
| Registered vendor supplying exempt goods or services | Col 3 | |
| Unregistered vendor, no GSTIN, employees, imports | Col 7 | |
| GST portal | GSTR-2B (12 months) | Validates Col 5 |
| GSTR-3B Table 5 | Validates Cols 3 + 4 | |
| GSTR-9 Table 8A | Validates ITC claimed | |
| Search Taxpayer | Decides Col 3, 4, 5 or 7 |
💡 Balance sheet tip: Count capital expenditure once, in the year it is incurred, even when it first sits in CWIP. Do not add it again when it is capitalised, or Column 2 will count the same spend twice.
4. Compile in five steps
Step 1: Column 2 from the balance sheet and P&L
- Start with all expenses in the P&L.
- Add capital expenditure incurred during the year: fixed asset additions plus CWIP spend, less transfers from CWIP.
- Exclude depreciation, amortisation, provisions, write-offs, partners' interest and remuneration, and income-tax.
Report amounts net of GST where ITC was claimed, and including GST where it was not.
Step 2: Map the standard ledgers
📊 [Insert image: Clause44_Ledger_Mapping.png]
| Ledger | Column |
|---|---|
| Salary, wages, bonus, staff welfare | 7 |
| Electricity | 3 |
| Interest paid to banks and NBFCs | 3 |
| Interest paid to unregistered lenders | 7 |
| Bank charges and processing fees | 5 |
| Rent paid to a registered landlord | 5 |
| Rent paid to an unregistered landlord (check RCM) | 7 |
| General insurance | 5 |
| Individual life or health insurance (exempt from 22.09.2025) | 3 |
| Petrol and diesel (non-GST; add a note) | 3 |
| Freight / GTA | 5 or 7, depending on the transporter |
| Advocates and unregistered professionals | 7 |
| Government fees, stamp duty, municipal taxes (add a note) | 7, or exclude |
| Imports | 7 |
| Depreciation, provisions, partners' remuneration, income-tax | Exclude |
Step 3: Match vendors with GSTR-2B
- Download GSTR-2B for all 12 months and combine the files into one sheet.
- Make a pivot table of the vendor ledgers by party.
- Look up each vendor's GSTIN in the combined 2B with XLOOKUP, or INDEX/MATCH in older Excel. Vendors that match go to Column 5.
Step 4: Check the remaining vendors on Search Taxpayer
Look up each vendor that has a GSTIN but is not in 2B on the GST portal:
- Composition dealer → Column 4. These dealers do not file GSTR-1, so they never appear in 2B.
- Exempt supply (the vendor issued a bill of supply) → Column 3.
- Cancelled registration or non-filer → flag it as a risk.
Step 5: Vendors with no GSTIN → Column 7
💡 Shortcut: Sort vendors by spend. The top 20–30 usually account for about 80% of the value. Verify those individually on the portal, and rely on the GSTIN tag in the vendor master for the rest.
5. Check with five tie-outs
- Column 2 equals P&L expenses plus capital expenditure incurred, less the exclusions.
- Each default mapping is backed by a note.
- Column 5 matches the 12-month GSTR-2B taxable value. Separately, ITC claimed matches GSTR-9 Table 8A.
- Columns 3 + 4 match the 12-month total of GSTR-3B Table 5.
- Column 6 + Column 7 equals Column 2. The difference must be nil.
Explain any gap in checks 3 or 4: timing differences, ITC blocked under section 17(5), capital goods, imports, or vendors who have not filed returns.
Then test 10–15 actual invoices. A tax invoice supports Column 5. A bill of supply points to Column 3 or 4.
6. Red flags to raise with the client
| Finding | Exposure |
|---|---|
| ITC claimed on purchases from composition dealers | The ITC is ineligible and must be reversed with interest |
| Vendor's registration is cancelled but its invoices still charge GST | Risk of fake ITC |
| Large Column 7 spend paid in cash | Section 40A(3) disallowance and bogus-purchase allegations |
| Unregistered GTA, advocates or landlords | Reverse charge (RCM) liability may be unpaid |
| Column 5 well above the GSTR-2B total | Vendors are not filing returns, so the ITC is at risk |
Report these in a separate management letter, not in the tax audit report.
7. Report and document
Sample note to Clause 44:
The break-up has been compiled from the books of account and supplier GSTIN details, reconciled with GSTR-2B and GSTR-3B, and verified on a test-check basis. Non-cash items and appropriations of profit are excluded. Capital expenditure is included in the year it is incurred. Imports are shown in Column 7. Amounts are net of input tax credit availed, and include GST where no credit was availed.
- Management confirmation: get written confirmation of each vendor's GST status and the classification, by email or in the management representation letter.
- Working papers: keep the Excel working, the GSTR-2B downloads, Search Taxpayer screenshots for the top vendors, and the confirmation.
- Data not available: if the client cannot provide the data, report the limitation. Do not plug in estimates, because section 271J applies to the auditor.
8. Common mistakes
- ❌ Counting depreciation as well as the capital purchase, so the same asset is counted twice.
- ❌ Counting CWIP spend again when it is capitalised.
- ❌ Reporting amounts including GST when ITC was claimed.
- ❌ Splitting expenditure by GST rate. Clause 44 has no rate columns.
- ❌ Leaving composition dealers in Column 5.
- ❌ Comparing Column 5, which is an expense value, with GSTR-9 Table 8A, which is an ITC tax amount.
- ❌ Plugging in estimates instead of reporting a limitation.
Bottom line
The balance sheet and P&L give the total. The mapping classifies the standard ledgers. GSTR-2B and Search Taxpayer classify the vendors. GSTR-3B and GSTR-9 confirm the result. Compiled, tied out and documented this way, Clause 44 takes hours, and it will hold up when the department compares it with the client's GST data.
