Clause 44 of Form explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Clause 44 of Form 3CD requires total expenditure to be split between entities registered under GST and those not registered, with the registered portion further divided into exempt supplies, composition-scheme entities and other registered entities.
The format
| Col | Heading |
|---|---|
| 2 | Total amount of expenditure incurred during the year |
| Expenditure in respect of entities registered under GST | |
| 3 | Relating to goods or services exempt from GST |
| 4 | Relating to entities falling under the composition scheme |
| 5 | Relating to other registered entities |
| 6 | Total payment to registered entities |
| 7 | Expenditure relating to entities not registered under GST |
Clause 44 belongs to Form 3CD under rule 6G of the Income-tax Rules, 1962. The ICAI Guidance Note carrying this guidance is the concluding edition under the Income-tax Act, 1961. From the first audit under the Income-tax Act, 2025 the particulars are furnished in Part C and Part D of Form No. 26 under rule 47 of the Income-tax Rules, 2026.
Total, not head-wise
Paragraph 79.1 settles a question that consumed a great deal of time when the clause first became operative. The heading of the table begins "Break-up of total expenditure", and so total expenditure including purchases is given in the prescribed format. Head-wise or nature-wise detail is not envisaged by the clause.
That is a significant relief. It means the clause is a reconciliation exercise on one aggregate figure, not a re-analysis of the entire profit and loss account by expense head.
What comes out of columns 3 to 7
Non-cash charges
Paragraph 79.2: depreciation under section 32, bad debts under section 36(1)(vii) and similar accounting expenses that are non-cash charges to the profit and loss account should not be reported in any of columns 3 to 7 — even though the amount is included in column 2, total expenditure.
This asymmetry is the single most important mechanic in the clause. Column 2 is the accounting total; columns 3 to 7 are the GST-relevant subset. They are not meant to add up to column 2.
Anything that is not a supply
Paragraph 79.3: only expenses within the scope of GST — those that amount to a "supply" under section 7 of the CGST Act, 2017 — are reported in columns 3 to 7. Schedule III to the CGST Act lists activities treated as neither a supply of goods nor of services, and expenditure on those is excluded.
The Guidance Note gives the obvious and largest example: Para 1 of Schedule III covers "services by an employee to the employer in the course of or in relation to his employment", so remuneration to employees need not be reported.
The recommended working paper
Paragraph 79.4 sets out a reconciliation worth adopting verbatim:
| Description | Amount |
|---|---|
| Total value of expenditure in profit and loss for the year (to be reported in column 2) | XXXX |
| Add: total value of capital expenditure not included in profit and loss for the year | XXXX |
| Less: total value of non-cash charges considered as expenditure | XXXX |
| Less: total value of expenditure excluded for being transactions in securities and transactions in money | XXXX |
| Less: total value of expenditure excluded by virtue of Schedule III to the CGST Act, 2017 | XXXX |
| Balance being value of expenditure for clause 44 | XXXX |
The Guidance Note adds a footnote that matters operationally: details of all deductions and additions must be maintained for each sub-entity (GSTIN-wise) of the legal entity. A multi-state business has one income-tax entity and several GSTINs, and the working paper has to bridge them.
Note the first adjustment. Capital expenditure not routed through profit and loss is added back. A business that reads clause 44 as "the expense side of the P&L" will understate it by the whole of its capital spend — which for an asset-heavy year can be the largest single number in the reconciliation.
Registration of the payee does not affect deductibility
Paragraph 79.5 makes a point worth passing to clients directly: any expenditure incurred wholly and exclusively for the business or profession qualifies for deduction under the Act, and registration or otherwise of the payee under GST has no relevance to allowability.
Clause 44 is a disclosure, not a disallowance. Reporting a large figure in column 7 does not put the deduction at risk under the Income-tax Act — though it may of course be of interest for other purposes.
Column 3 — what "exempt" means
Column 3 reports the value of all inward supplies of goods or services exempt from GST. Section 2(47) of the CGST Act defines exempt supply as a supply of goods or services or both which attracts nil rate of tax, or which may be wholly exempt under section 11 of the CGST Act or section 6 of the IGST Act, and includes non-taxable supply.
The Guidance Note lists the rate and exemption notifications to consult — Notifications 1/2017 and 2/2017 CT(R) for intra-State goods, 11/2017 and 12/2017 CT(R) for intra-State services, and the corresponding IT(R) notifications for inter-State supplies.
Worked example
A company's profit and loss shows total expenditure of Rs 42 crore, including depreciation of Rs 3.1 crore and employee costs of Rs 9.4 crore. Capital expenditure not in profit and loss is Rs 2.6 crore.
| Step | Rs crore |
|---|---|
| Total expenditure in profit and loss — column 2 | 42.00 |
| Add: capital expenditure not in profit and loss | 2.60 |
| Less: depreciation (non-cash charge) | (3.10) |
| Less: employee costs (Schedule III, Para 1) | (9.40) |
| Base for columns 3 to 7 | 32.10 |
The Rs 32.10 crore is then split between registered and unregistered payees, and the registered portion between exempt supplies, composition-scheme entities and other registered entities. Column 2 remains Rs 42 crore and deliberately does not reconcile to Rs 32.10 crore.
Audit checklist
- Report total expenditure, not head-wise detail.
- Build the paragraph 79.4 reconciliation and keep it as the working paper.
- Add back capital expenditure not routed through profit and loss.
- Exclude depreciation, bad debts and other non-cash charges from columns 3 to 7 while leaving them in column 2.
- Exclude employee remuneration and everything else in Schedule III to the CGST Act.
- Exclude transactions in securities and in money.
- Maintain the reconciliation GSTIN-wise for a multi-registration entity.
- Identify composition-scheme vendors separately — this needs a vendor-master flag, not a year-end guess.
Common mistakes
- Forcing columns 3 to 7 to add up to column 2. They are not meant to.
- Omitting capital expenditure from the clause 44 base.
- Reporting salaries as expenditure on unregistered entities.
- Attempting a head-wise break-up and spending weeks on it.
- Leaving composition-scheme identification to the last week — it requires vendor data collected through the year.
- Suggesting to a client that column 7 puts a deduction at risk. It does not.