Form 3CD Clause 40 Ratios Working Paper Format 2026
FORM 3CD CLAUSE 40 — TURNOVER AND RATIOS WORKING PAPER
Assessee: {{client_name}} · PAN: {{client_pan}} · Previous year ended: {{period_end}} · Assessment Year: 2026-27
What the clause asks: details of turnover, gross profit and related ratios for the previous year and the preceding previous year — (1) total turnover of the assessee, (2) gross profit to turnover, (3) net profit to turnover, (4) stock-in-trade to turnover, and (5) material consumed to finished goods produced. The form notes that the details are for the principal items of goods traded or manufactured or services rendered.
1. Ratios for the clause
| Sr. | Particulars | Previous year — amount ₹ | Previous year — ratio | Preceding previous year — amount ₹ | Preceding previous year — ratio |
|---|
| 1 | Total turnover of the assessee | {{c40_turnover_cy}} | — | | — |
| 2 | Gross profit / turnover | | | | |
| 3 | Net profit / turnover | | | | |
| 4 | Stock-in-trade / turnover | | | | |
| 5 | Material consumed / finished goods produced | / | | / | |
2. How each figure is built
| Figure | Basis adopted | Source (financial-statement note / ledger) | Agreed to audited accounts? (Y/N) |
|---|
| Total turnover | Revenue from operations as per the audited accounts, on the same basis in both years (state whether net of GST, returns and trade discounts) | | |
| Gross profit | Turnover less cost of goods sold: opening stock + purchases + direct and manufacturing expenses − closing stock | | |
| Net profit | Net profit before tax as per the profit and loss account | | |
| Stock-in-trade | Closing stock of finished goods (manufacturer) or traded goods (trader); raw material, work-in-progress and stores excluded | | |
| Material consumed | Opening raw material + purchases − closing raw material, including consumables that form part of the product | | |
| Finished goods produced | Value of production for the year: material consumed + direct labour + manufacturing overheads, adjusted for the change in work-in-progress | | |
- Work in value terms. Quantitative details belong to clause 35; clause 40 ratios are computed on amounts.
- Compute the ratios for the business as a whole. Where the assessee has distinct lines with very different margins, the overall ratios are still what the clause carries; add a line-wise analysis in the file to explain movements.
- Manufacturers report all five rows. Traders report rows 1 to 4; material consumed to finished goods produced does not apply. Service providers report turnover and net profit; gross profit and stock ratios apply only if they hold stock or prepare a trading account. State "not applicable" with the reason — do not enter zero.
- Use the same definitions in both years. If last year’s tax audit report used a different basis, either follow it or recompute last year and disclose the change.
- Preceding-year figures come from last year’s Form 3CD. Where the assessee was not subject to tax audit last year, the preceding-year column need not be filled; say so.
- Net profit is before tax. For a loss, report the negative ratio; do not leave the row blank.
3. Movement analysis
| Ratio | Movement (percentage points) | Management explanation | Corroborated by (price lists, mix, volumes, yield records) | Auditor’s conclusion |
|---|
| Gross profit / turnover | | | | |
| Net profit / turnover | | | | |
| Stock-in-trade / turnover | | | | |
| Material consumed / finished goods produced | | | | |
The clause asks only for the ratios. The analysis above is for the file: an unexplained fall in gross profit, a jump in stock relative to turnover, or a rise in material consumed per unit of output is the kind of variance the department’s risk systems select on, and the auditor should understand it before signing. Link each explanation to clause 35 (quantitative details), clause 14 (stock valuation) and the cut-off work.
4. Evidence to obtain
- Audited or final financial statements for both years, with the trading or manufacturing account and stock schedules.
- Last year’s Form 3CD clause 40, to carry the preceding-year figures unchanged unless restated.
- Stock summary by category at both year-ends, agreed to the valuation working.
- Production records and bills of material where the material-consumed ratio is reported.
- Management’s written explanation for significant movements.
5. Common errors
- Turnover in clause 40 not agreeing with the profit and loss account, the turnover used for the section 44AB test or the return.
- Including raw material and work-in-progress in stock-in-trade, or using total inventory from the balance sheet.
- Using net profit after tax, or after appropriations to partners.
- Dividing material consumed by sales instead of by finished goods produced.
- Changing the gross-profit definition between years (for example, moving freight or power from direct to indirect) without disclosure.
- Reporting stock ratios for a pure service provider, or entering zero where "not applicable" is the answer.
- Entering a ratio as a decimal in one year and a percentage in the other.
6. Flow to the return of income
The ratios are not carried into the computation of income. The underlying amounts — turnover, gross profit, net profit before tax, opening and closing stock, purchases and consumption — are the same figures entered in the profit-and-loss, trading and manufacturing account parts of the return. Agree them line by line, because the ratios can be recomputed from the return and compared with the clause.
Conclusion: ratios computed on a basis consistent with the preceding year: ____ [Yes / No — state the change]. Rows reported as not applicable and why: ____________. Significant movements and explanations accepted: ____________.
Prepared by: {{prepared_by}} Reviewed by: Date: 1 October 2026
