Draft I-T forms seek tighter audit rules, PAN compliance

The government has released draft income-tax rules and forms proposing tighter disclosures and higher compliance responsibilities for taxpayers, auditors and companies, ahead of the rollout of the new Income Tax Act, 2025 from April 1, 2026. The draft has been issued for stakeholder consultation, with final rules expected next month.

The new Form 124 requires disclosure of a relationship, if any, between a tenant (assessee) and a landlord. Tax experts say this added transparency at the reporting stage could deter fictitious or inflated rent claims while protecting genuine arrangements.

The draft also significantly expands auditor responsibility. Under Form 44 for foreign income and Foreign Tax Credit (FTC), auditors will have to independently verify foreign tax withholding certificates, proof of payment, exchange-rate conversions, and treaty eligibility conditions such as tax residency and beneficial ownership. Experts caution this could be challenging where foreign jurisdictions issue consolidated tax statements, taxes are paid in a different year, or assessments remain provisional.

PAN-related compliance is also tightened. Companies applying for a PAN must now declare that they do not already hold one. Entities will be required to conduct internal due diligence to ensure branches, project offices or predecessor entities do not already have a PAN, to prevent duplication.

Further, Tax Audit Form 26 mandates disclosure of whether any qualification, adverse remark or disclaimer in the statutory audit report affects income, loss or book profit. This elevates the tax impact of audit observations, meaning companies can no longer treat such remarks as mere disclosures.

Tax auditors will need to assess whether issues like revenue recognition, provisioning, or inventory valuation result in understated taxable income.

Additionally, audit reports must disclose accounting software details, cloud or server location, IP address, country of data storage, and the address of physical backup servers in India.