Tax Audit Requirements in India: Section 44AB and the New Income-tax Act

Tax audit rules require specified businesses and professionals to have their accounts audited by an eligible accountant and furnish the prescribed audit report when the statutory conditions are met. The applicable provision now depends on the tax period concerned because India has transitioned from the Income-tax Act, 1961 to the Income-tax Act, 2025.

What is Section 44AB?

Section 44AB of the Income-tax Act, 1961 is the provision dealing with audit of accounts of certain persons carrying on business or profession. Broadly, it requires a tax audit where prescribed turnover or gross-receipt limits are crossed and in specified cases involving presumptive taxation.

For assessment year 2026-27, the Income Tax Department confirms that the general threshold is Rs. 1 crore for business. The threshold increases to Rs. 10 crore where both cash receipts and cash payments do not exceed 5 percent of their respective totals. For a profession, the gross-receipts threshold is Rs. 50 lakh.

The 5 percent test must be considered separately for receipts and payments. Non-account-payee cheques or bank drafts are treated as cash for this purpose under the applicable provision.

Section 63 of the Income-tax Act, 2025

The Income Tax Department states that Section 63 of the Income-tax Act, 2025 corresponds to Section 44AB of the earlier Act. For tax year 2026-27, the business threshold continues at Rs. 1 crore, with the enhanced Rs. 10 crore limit where the prescribed 5 percent cash conditions are satisfied, and the professional threshold remains Rs. 50 lakh.

This distinction is important when reading older articles or references. Section 44AB remains relevant for assessment year 2026-27, while compliance for tax year 2026-27 is governed by the new Act and its rules.

Presumptive taxation and tax audit

Tax audit is not determined only by the Rs. 1 crore, Rs. 10 crore and Rs. 50 lakh limits. The law also contains audit triggers for specified taxpayers who are covered by presumptive taxation provisions but declare income below the prescribed presumptive amount, subject to the conditions of the relevant provision.

Under Section 44AB of the 1961 Act, these rules include specified cases connected with presumptive provisions such as Sections 44AE and 44ADA. A taxpayer using or opting out of a presumptive scheme should therefore examine the relevant provision rather than relying only on annual turnover.

Tax audit forms for AY 2026-27

For financial year 2025-26 (assessment year 2026-27), the existing forms under the Income-tax Act, 1961 continue to apply:

• Form 3CA with Form 3CD: generally applicable where the accounts are already required to be audited under another law.
• Form 3CB with Form 3CD: generally applicable where the person is not required to have the accounts audited under another law.
• Form 3CD: contains the prescribed statement of tax-audit particulars.

The Income Tax Department provides the current forms and utilities on its Income Tax Forms download page.

Form for tax year 2026-27

For tax year 2026-27 under the Income-tax Act, 2025, the Income Tax Department states that Form No. 26 under the Income-tax Rules, 2026 replaces the earlier combination of Forms 3CA, 3CB and 3CD for the new Act.

Tax audit due date

For assessment year 2026-27, the Income Tax Department specified 30 September 2026 as the tax-audit report due date in ordinary audit cases. Where the taxpayer is required to furnish a report for transfer-pricing purposes, the corresponding audit-report timeline differs.

As a general statutory principle, the audit report is furnished one month before the applicable due date for filing the return of income. Taxpayers should always verify the current year's due date on the official Income Tax e-Filing portal, because the Government may extend statutory deadlines by notification, circular or order.

Who can conduct a tax audit?

The tax audit must be conducted by an "accountant" as defined for income-tax purposes, which in this context means a Chartered Accountant who is legally eligible to conduct the audit. For electronic filing under the 1961 Act, the taxpayer assigns the applicable audit form to the Chartered Accountant through the e-Filing portal, the Chartered Accountant uploads the report, and the taxpayer completes the required acceptance process.

Records and preparation for tax audit

A taxpayer who may be subject to tax audit should maintain complete books and supporting records appropriate to the business or profession. Depending on the taxpayer, these may include ledgers, cash and bank records, sales and purchase records, invoices, expense vouchers, fixed-asset details, inventory records, GST records, TDS information, loan confirmations and other documents needed to verify the particulars reported in the tax audit.

Practical compliance checklist

1. Identify whether the relevant period falls under the Income-tax Act, 1961 or the Income-tax Act, 2025.
2. Determine whether the activity is a business or profession for the applicable tax-audit provision.
3. Calculate total sales, turnover or gross receipts for the relevant period.
4. For a business seeking the enhanced Rs. 10 crore threshold, verify both the cash-receipt and cash-payment percentages.
5. Check whether any presumptive taxation provision creates a separate audit requirement.
6. Determine whether another law already requires an audit, as this affects the prescribed tax-audit form.
7. Reconcile books with GST, TDS, AIS and other relevant tax information before finalisation.
8. Appoint an eligible Chartered Accountant and furnish the audit report within the applicable statutory time limit.

For further information about tax audit requirements and services, email contact@businesswonder.com.

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