Tax Audit: When It’s Required, and What It Involves

Tax audit isn’t triggered by profitability or by choice; it’s triggered by turnover or gross receipts crossing a fixed line, or by specific presumptive-scheme situations. Once triggered, it runs on its own tighter timeline ahead of the return itself.

Income Tax

House Property Income

Business and Professional Income

Interest and Dividend Income

Capital Gains on Mutual Funds and Gold

Capital Gains on Crypto, REITs, and InvITs

Section 80C and NPS-Linked Deductions

Section 80D: Health Insurance

Section 80G: Donations

Tax Audit

Thresholds and forms are periodically revised. This article is for general information and does not constitute tax advice.

What It Is

A tax audit under new Section 63 (old Section 44AB) is an examination of a taxpayer’s books of accounts by a Chartered Accountant, verifying that income has been computed correctly and that the accounts comply with the Act. It results in an audit report that gets filed on the income tax portal and referenced by the ITR itself, not a standalone document sitting apart from the return.

Turnover and Receipt Thresholds

Business: mandatory once turnover exceeds ₹1 crore in a year. This rises to ₹10 crore if both cash receipts and cash payments each stay within 5% of the total value of receipts and payments respectively for that year. Profession: mandatory once gross receipts exceed ₹50 lakh in a year. Unlike the business threshold, there’s no digital-transaction enhancement to this particular limit; it stays flat at ₹50 lakh regardless of how receipts are collected.

When Presumptive Taxpayers Get Pulled Into Audit

Someone using the presumptive scheme isn’t automatically exempt from audit. A Section 44AD user (business) who declares income below the prescribed 6%/8% presumptive rate, where total income exceeds the basic exemption limit, is pulled into mandatory audit, and also becomes barred from re-entering 44AD for the following 5 years. A Section 44ADA user (profession) faces the equivalent trigger for declaring income below the 50% presumptive rate under the same total-income condition.

Forms

Form 3CA is used where the taxpayer’s accounts are already audited under another law, typically the Companies Act, which is uncommon for an individual or proprietorship. Form 3CB is used where the tax-audit Chartered Accountant is the only auditor, the usual situation for an individual taxpayer. Both are filed alongside Form 3CD, a detailed statement of particulars running across many clauses covering everything from depreciation to related-party transactions, periodically revised, including recent updates addressing MSME payment disclosures.

Due Date

The standard due date is 30 September of the assessment year, a month ahead of the 31 October ITR deadline for audit cases, since the return draws on figures from the completed audit report. Where transfer pricing provisions apply and Form 3CEB is required, both the audit report and the ITR itself move to 31 October and 30 November respectively.

Penalty for Non-Compliance

Section 271B provides for a charge of 0.5% of turnover or gross receipts, capped at ₹1,50,000, for failing to get the audit done or for not filing the report on time. This was recently reclassified from a “penalty” to a “fee,” though the amount and how it’s recovered haven’t changed. A reasonable cause defence exists under Section 273B, accepted in the past for situations like serious illness, natural disasters, or accounting records being seized or lost.

FAQs: Tax Audit

Is the ₹75 lakh figure I’ve seen for professionals the tax audit threshold?

No, that relates to eligibility for the Section 44ADA presumptive scheme, not the direct tax audit threshold, which stays at a flat ₹50 lakh for professionals.

Can any Chartered Accountant conduct a tax audit?

Only a CA holding a valid certificate of practice, and there’s a cap on how many tax audits a single CA can sign in a financial year, currently 60.

Is voluntary audit possible if turnover is just under the threshold?

Not really as a distinct category. Audit is either mandatory once a threshold is met, or not required at all; below the threshold, regular or presumptive computation applies without an audit.

Does tax audit applicability depend on which tax regime was chosen?

No. The threshold is based on turnover or gross receipts and applies the same way regardless of which regime is used to compute liability.

If presumptive income is declared at or above the prescribed rate, is audit still needed?

No. The audit trigger only applies when declared income falls below the prescribed rate while total income exceeds the basic exemption limit.

Is there a real difference between “turnover” and “gross receipts” here?

Yes, they apply to different categories: turnover for businesses, gross receipts for professions, with slightly different threshold rules attached to each.

Does a loss-making business still need a tax audit if turnover crosses the threshold?

Yes. The trigger is turnover or receipts crossing the limit, not profitability; a loss-making business above the threshold still needs the audit.

Why is the audit due a month before the ITR deadline rather than on the same date?

Because the ITR for audit cases draws on figures from the completed audit report, so the audit has to be finished first for the return to be prepared accurately.

If cash transactions exceed 5% only partway through the year, does the enhanced ₹10 crore threshold still apply?

The test is applied over the full year in aggregate, comparing total cash receipts and payments against the total value of all receipts and payments, not as a point-in-time snapshot.

Last updated on 7 August 2026