Tax Audit Under Section 44AB — Who Needs It, Turnover Limits and Audit Report

A tax audit under Section 44AB of the Income Tax Act is a mandatory audit of the books of accounts of certain businesses and professionals — conducted by a Chartered Accountant. It is distinct from a statutory company audit and is required purely for income tax compliance purposes. Here is who needs it, the revised limits and what it involves.

Who Must Get a Tax Audit Under Section 44AB?

Business — Standard Limit: If your business turnover exceeds ₹1 crore in the financial year, a tax audit is mandatory.

Business — Extended Digital Limit: The ₹1 crore threshold is extended to ₹10 crore if at least 95% of your receipts AND payments are through banking channels (cheques, NEFT, RTGS, UPI, card, etc.) during the year. This major relaxation was introduced to encourage digital transactions.

Professionals: If gross receipts from profession exceed ₹50 lakh in the financial year. (Examples: CA, CS, doctor, lawyer, architect, consultant.)

Presumptive Taxation opt-out: If you had opted for presumptive taxation under Section 44AD or 44ADA in earlier years and now wish to declare income lower than the presumptive rate, you must get a tax audit if your income exceeds the basic exemption limit.

Specific Limit for Newly Set Up Businesses

For certain specified professions (legal, medical, engineering, architectural, accountancy, film production, interior design), the basic limit is ₹50 lakh. For all other businesses, it is ₹1 crore (or ₹10 crore with 95% digital transactions).

What Does a Tax Audit Involve?

The CA conducting the tax audit examines your books of accounts, supporting documents, financial statements and tax records and certifies them in the prescribed forms. The audit covers:

• Verification that books of accounts are maintained as required
• Verification of all heads of income, deductions claimed and expenses
• Checking TDS compliance — TDS deducted and deposited on time
• Verification of loan transactions, cash payments above threshold, related party transactions
• Comments on specific clauses of Form 3CD (43+ items)

Forms Used in Tax Audit

• Form 3CA + 3CD: When the accounts are already audited under any other law (Companies Act, etc.) — the CA certifies in Form 3CA and provides detailed report in Form 3CD
• Form 3CB + 3CD: When the accounts are audited only for income tax purposes — Form 3CB replaces 3CA

Due Date for Tax Audit Report

The tax audit report must be uploaded on the Income Tax e-filing portal by the tax auditor by 30 September of the assessment year (i.e., 30 September 2026 for FY 2025-26). For transfer pricing cases, the deadline is 31 October. The taxpayer must accept the audit report on the portal before filing ITR.

Penalty for Non-Compliance

Failure to get a tax audit when required, or failure to upload by the due date, attracts a penalty under Section 271B equal to 0.5% of turnover or ₹1,50,000 — whichever is lower.

Conclusion

Tax audit under Section 44AB is a significant compliance requirement for businesses and professionals exceeding the prescribed limits. SPOTON's CA team conducts thorough tax audits, prepares 3CD reports and ensures timely upload before the September due date. Contact us for tax audit services in Calicut and Kerala.