3cd- cash system of accounting is allowed?

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Cash system is allowed in Form 3CD if regularly followed under Section 145(1). ICDS applies only to mercantile system, so no ICDS adjustments are needed for cash basis. Auditor reports method in Clause 13.

Kunjan

Kunjan (Querist)
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14 April 2026 assessee is practising ca having receipts of 3 crores for fy25-26.
he is of view , as i am following cash system , no need to follow icds and hence, no need to follow merchantile system.
my question -- in 3cd, is cash system allowed?
assessee's view --> so even in 3cd, no need to follow merchantile system, as he is following cash system .

my view-->cash system is not allowed in 3cd As CBDT has clarified Circular No. 10/2017, dated 23-3-2017, that the general provisions of ICDS shall apply to all persons , so , merchantile is compulsory for 3cd right. am i right? or is cash system in 3cd allowed?

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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15 April 2026 Yes, the cash system of accounting is allowed in Form 3CD for an assessee like a practicing CA with receipts exceeding Rs. 3 crores in FY 2025-26, provided it is regularly employed under Section 145(1).

ICDS notified under Section 145(2) apply only to assessees following the mercantile system, not the cash system. For cash basis assessees, no ICDS adjustments or disclosures are required in Form 3CD clauses 13(d), 13(e), or 13(f).

Clause 13(a) simply reports the method used (cash or mercantile), and since ICDS do not override the cash system, the assessee's view holds—no mercantile adjustments needed.

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Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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15 April 2026 Legal Validity of the Cash System
Section 145(1): Explicitly allows income under "Profits and gains of business or profession" (PGBP) and "Income from other sources" to be computed using either the cash or mercantile system.
Exclusions for Companies: While Section 145 permits both, the Companies Act, 2013 (Section 128) mandatorily requires companies to follow the accrual (mercantile) basis. Non-corporate entities like individuals, HUFs, and firms still have the choice.

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Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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15 April 2026 Reporting in Form 3CD (Clause 13)
Clause 13(a): Requires the tax auditor to state the method of accounting used (Cash or Mercantile).
Adjustments: If using the cash system, the auditor simply reports "Cash" in 13(a). Clauses 13(d), (e), and (f)—which deal with ICDS compliance and adjustments— which are only relevant for those using the mercantile system.

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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15 April 2026 Key Clarifications from Circular No. 10/2017
ICDS and Accounting Systems: The CBDT clarified that ICDS shall be followed only if the assessee maintains accounts as per the mercantile system.
No ICDS for Cash Basis: There are currently no ICDS prescribed for taxpayers using the cash system of accounting.
Presumptive Taxation: The Circular noted that ICDS provisions (like revenue recognition) apply to persons under presumptive schemes (e.g., Section 44AD) to determine their turnover/receipts, but this does not force a switch to mercantile for overall book-keeping.

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Kunjan

Kunjan (Querist)
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17 April 2026 no icds for cash system is being exploited by CA since many years they are following cash and in gst, they are showing merchantile and frankly, gst fraud looks to be going on.

anyways, thank u sir for perfect analyses.

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Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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18 April 2026 Can't help.....
Good Luck....

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