Tax audit

Tax audit in India is mandatory review of a taxpayer's books of accounts, conducted by Chartered Accountant under Section 44AB of the Income Tax Act. Its primary purpose is to ensure that financial records are transparent, accurate and compliant with tax laws, thereby preventing tax evasion.

Applicability and Turnover Thresholds for Most business (FY 2025-26)

For Business:

Whether a business is subject to tax-audit or not, is determined by its total turnover in the current financial year.


• Tax audit becomes compulsory for a business if its total turnover exceeds ₹1 crore in a financial year.
• Incentive for Digital transactions: With Focus on reducing cash dealings, the government incentivized non-cash and digital transactions by raising threshold limit for tax audit applicability to ₹10 crores if: More than 95% of total transactions of the business are through non-cash modes which can be through cheques, drafts or digital etc.
• Suppose, the business goes almost fully digital, Meaning, more than 95% of total transactions are exclusively through digital/electronic modes: Then, the threshold is further raised from ₹10 crores to ₹15 crores.

For Profession:

Similar to business, Whether a Profession is subject to tax-audit or not, is determined by its gross receipts from the profession in the current financial year.


• The tax audit becomes compulsory for professional entity, if its gross receipts exceeds ₹ 50 lakhs in a financial year.
• Incentive for Digital transactions: The threshold limit increases to ₹75 lakhs if at least 95% of receipts are through digital/banking channels

Presumptive Taxation Cases:

If a business or profession opts for presumptive taxation under section 44AD/44ADA/44AE and declare incomes at prescribed rate ie 6%/8% of turnover/gross receipts , then no tax audit is required, even if turnover exceeds ₹1 crore.

Exception: But, if the business declares / claims that its business income is lower than the presumptive rates, but the total income exceeds the basic exemption limit, then tax audit becomes mandatory.

Critical Deadlines for tax audit (AY 2026-27)

1. Standard Deadline: For most businesses and professionals subjected to tax audit, the report must be filed by September 30th of the relevant Assessment Year.
2. Transfer Pricing Deadline: For taxpayers subject to Section 92E (international transactions), the deadline for the tax audit report is October 31st.
3. ITR Filing Deadline: Once the audit report is filed, the due date for filing the actual Income Tax Return (ITR) for audited cases is October 31st.

Mandatory Forms and Latest Changes

Form 3CA: For taxpayers whose accounts are already audited under another law (e.g., Companies Act).
Form 3CB: For those not mandated to be audited under any other law.
Form 3CD: A detailed statement of particulars required to be annexed to Form 3CA or 3CB.
Form 3CE: Form specific to taxpayers engaged in International transactions or transfer pricing transactions.

Penalties for Non-Compliance

Failure to get accounts audited or submit the report on time under Section 271B, results in a penalty which is equal to the lower of:
1. 0.5% of the total turnover, sales, or gross receipts.
2. ₹1,50,000.
Note: Penalties may be waived under Section 273B if "reasonable cause" is proven, such as natural calamities, strikes, resignation of the auditor, or death of the key person in charge of accounts. Additionally, non-compliance can lead to a defective return, disallowance of certain tax deductions, and increased scrutiny by the department.