Last reviewed: 25 September 2026. A tax audit under Section 44AB is not optional once you cross the turnover or receipts limits, and missing it can cost up to Rs 1.5 lakh and delay your return. This guide sets out the thresholds in full - including the Rs 10 crore digital-business limit - the situations that quietly trigger an audit, the forms, the due dates and how to prepare. The audit being completed now is for FY 2025-26 (AY 2026-27), which stays under the Income-tax Act, 1961, so this guide uses the 1961 section numbers for it and shows the Income-tax Act, 2025 position separately for tax year 2026-27 onward.
At a glance
Who needs a tax audit
| Taxpayer | Threshold |
|---|---|
| Business - mostly digital (cash within 5%) | Turnover > Rs 10 crore |
| Business - cash more than 5% | Turnover > Rs 1 crore |
| Profession | Gross receipts > Rs 50 lakh |
| Presumptive opt-out (44AD/44ADA) | Lower profit declared and income above basic exemption |
The Rs 10 crore digital-business condition
The higher Rs 10 crore limit is available only where both total cash receipts and total cash payments are 5% or less of the respective totals. This rewards businesses that transact almost entirely through banking channels. If cash crosses 5% on either side, the ordinary Rs 1 crore threshold applies.
Worked example: the 5% cash test
A Thane distributor has turnover of Rs 6 crore in FY 2025-26. Its books show:
| Item | Amount | Share |
|---|---|---|
| Total receipts | Rs 6.00 crore | 100% |
| Cash receipts (counter sales, small debtors) | Rs 24 lakh | 4% - within the limit |
| Total payments | Rs 5.60 crore | 100% |
| Cash payments (casual labour, local freight, petty purchases) | Rs 33.6 lakh | 6% - over the limit |
Receipts pass the test but payments fail it. Because the condition needs both sides within 5%, the Rs 10 crore limit is lost and the Rs 1 crore limit applies. Turnover of Rs 6 crore is above Rs 1 crore, so a tax audit is required. Had the business moved about Rs 5.6 lakh of those cash payments to bank transfers or UPI during the year, cash payments would have fallen to 5% and no audit would have been needed at this turnover. The test is applied on the full year's figures, so the fix has to happen during the year, not at closing.
The audit report forms
The auditor issues Form 3CA (where accounts are already audited under another law, such as the Companies Act) or Form 3CB (otherwise), together with the detailed particulars in Form 3CD - covering loans, related-party payments, disallowances, TDS compliance and more. These forms apply to the FY 2025-26 audit being filed now.
From tax year 2026-27: the Income-tax Act, 2025
The income you earn from 1 April 2026 is tested under the new Act. The thresholds carry over, but the section numbers, the report form and the default consequence change:
| Topic | AY 2026-27 (FY 2025-26) | Tax year 2026-27 onward |
|---|---|---|
| Tax audit | Section 44AB, 1961 Act | Section 63 (old 44AB) |
| Presumptive taxation | Sections 44AD, 44AE, 44ADA | Section 58 (old 44AD/44AE/44ADA) |
| Five-year bar after opting out | Section 44AD(4) | Section 58(7) (old 44AD(4)) |
| Audit report | Form 3CA/3CB with Form 3CD | Form No. 26 under the Income-tax Rules, 2026 |
| Failure to get audited or furnish the report | Section 271B penalty: 0.5% of turnover, up to Rs 1,50,000 | Fee under section 428(c) (inserted by the Finance Act, 2026): Rs 75,000 if furnished within one month of the due date, Rs 1,50,000 after that |
The practical change is that the new fee is fixed rather than turnover-based, so a small business that misses the date by a few days now pays the same Rs 75,000 as a large one. The first audit under section 63 will be for tax year 2026-27, due in 2027.
Prepare early
- Close your books and reconcile GST, TDS and bank data before the auditor starts.
- Keep the Form 3CD annexures ready - loans, cash transactions, disallowances.
- Target the 30 September report date; a late audit blocks a timely return and invites the penalty.
- For FY 2026-27, track cash receipts and payments monthly so you know early whether the Rs 10 crore limit will hold.
Frequently asked questions
What is the turnover limit for a tax audit under 44AB?
A business needs a tax audit if turnover exceeds Rs 1 crore. This rises to Rs 10 crore if cash receipts and cash payments are each within 5% of the total - i.e. the business is almost fully digital. For professionals, the limit is Rs 50 lakh of gross receipts.
How does the Rs 10 crore limit work?
If both your total cash receipts and total cash payments during the year are 5% or less of the respective totals, the audit threshold for business is raised from Rs 1 crore to Rs 10 crore. Cross 5% on either side and the Rs 1 crore limit applies.
What is the due date for AY 2026-27?
The tax audit report is due by 30 September 2026 and the income tax return for audited taxpayers by 31 October 2026. As of 25 September 2026 CBDT has not notified any extension of the report date, so plan for 30 September. Transfer pricing cases get an extended timeline.
What is the penalty for not getting audited?
For AY 2026-27 (FY 2025-26) the consequence is a penalty under Section 271B of the Income-tax Act, 1961: 0.5% of turnover or gross receipts, up to Rs 1,50,000, subject to reasonable cause. The Finance Act, 2026 turned this into a fixed fee only under the Income-tax Act, 2025, for tax year 2026-27 onward: section 428(c) levies Rs 75,000 where the report is furnished within one month of the due date and Rs 1,50,000 beyond that.
Does opting out of presumptive taxation trigger an audit?
Yes. If you had declared income under Section 44AD and then declare lower profits within the lock-in period while your total income exceeds the basic exemption limit, a tax audit becomes applicable even below Rs 1 crore.
Which forms make up the tax audit report?
For AY 2026-27 the auditor issues Form 3CA (where accounts are already audited under another law) or Form 3CB (otherwise), along with the detailed statement of particulars in Form 3CD. From tax year 2026-27 the audit under section 63 of the Income-tax Act, 2025 is reported in Form No. 26 under the Income-tax Rules, 2026.
Is a tax audit the same as a statutory or GST audit?
No. A statutory audit is under the Companies Act, a GST audit relates to GST returns, and a tax audit under 44AB is specifically an income-tax requirement based on turnover or profession.
Do professionals under 44ADA need an audit?
A professional opting for presumptive taxation under 44ADA (up to Rs 75 lakh receipts, mostly digital) generally avoids audit, but if they declare lower profits and their income exceeds the basic exemption, audit applies.
What records should I keep for the audit?
Books of account, bank statements, GST and TDS records, fixed asset and loan registers, and details of related-party and cash transactions - the auditor reports many of these in Form 3CD.
What happens if the audit report is filed late?
For AY 2026-27 a late report can attract the Section 271B penalty and can also delay a timely return. Plan for the 30 September report date so your return is filed on time.
Which section governs tax audit from tax year 2026-27?
Section 63 of the Income-tax Act, 2025 (old 44AB). Presumptive taxation moves to section 58 (old 44AD, 44AE and 44ADA), the five-year bar after opting out to section 58(7) (old 44AD(4)), and the default consequence to the fee in section 428(c). The first audit under the new Act is for tax year 2026-27, reported in 2027.
How do I test the 5% cash condition in practice?
Take all receipts in cash (including cash sales and cash collected from debtors) as a percentage of total receipts, and all payments in cash as a percentage of total payments. Both must be 5% or less. A receipt or payment by a cheque or draft that is not account-payee is treated as cash for this test, so check how customers and suppliers are actually paid.
We conduct the 44AB audit, prepare Form 3CA/3CB-3CD and file your return within the due date.
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