What is a Tax Audit?
Tax Audit is an audit conducted under Section 44AB of the Income Tax Act, 1961. It involves examination of the books of accounts of a business or profession to ensure proper maintenance of records and accurate reporting of income.
The objective of a tax audit is to:
- Verify correctness of income computation
- Ensure compliance with provisions of the Income Tax Act
- Report prescribed financial details in Form 3CA/3CB and Form 3CD
- Assist in accurate filing of Income Tax Return
Tax audit must be conducted by a Chartered Accountant.
Tax Audit Applicability under Section 44AB
For Business
Tax audit is mandatory if:
- Total turnover exceeds ₹1 Crore in a financial year.
However, the threshold increases to ₹10 Crore if:
- Cash receipts do not exceed 5% of total receipts, AND
- Cash payments do not exceed 5% of total payments.
For Profession
Tax audit is mandatory if:
- Gross receipts exceed ₹50 Lakhs during the financial year.
Presumptive Taxation & Tax Audit
Section 44AD (Business)
- Applicable if turnover does not exceed ₹2 Crore.
- Income presumed at 8% of turnover (6% for digital receipts).
- Maintenance of books of accounts is not mandatory.
Tax audit becomes mandatory if:
- Income declared is lower than the presumptive rate, AND
- Total income exceeds the basic exemption limit.
Section 44ADA (Profession)
- Applicable if gross receipts do not exceed ₹50 Lakhs.
- Income presumed at 50% of gross receipts.
Tax audit becomes mandatory if:
- Income declared is lower than 50%, AND
- Total income exceeds the basic exemption limit.
Entities Covered Under Tax Audit
- Individual / Proprietorship
- Hindu Undivided Family (HUF)
- Partnership Firm
- LLP
- Company
- Association of Persons (AOP) / Body of Individuals (BOI)
Objectives of Tax Audit
- Ensure proper maintenance of books of accounts
- Verify compliance with Income Tax provisions
- Report specified financial particulars in Form 3CD
- Reduce risk of tax disputes
- Improve financial transparency and credibility
Tax Audit Report Forms
Tax Audit Report is furnished in:
- Form 3CA – When accounts are already audited under another law (e.g., Companies Act).
- Form 3CB – When accounts are not required to be audited under any other law.
Both forms are accompanied by Form 3CD, which contains detailed financial and tax disclosures.
Due Date for Tax Audit
- Audit report must be obtained and filed before 31st October 2026.
- In case of transfer pricing applicability, due date may extend to 30th November 2026, subject to government notification.
Online Filing of Tax Audit Report
The tax audit report must be filed electronically on the Income Tax e-filing portal by the Chartered Accountant. The taxpayer must accept the audit report online before filing the Income Tax Return.
Penalty for Non-Compliance (Section 271B)
If a taxpayer fails to get accounts audited as required:
Penalty = Lower of:
- 0.5% of turnover or gross receipts, OR
- ₹1,50,000
Penalty may be waived if reasonable cause is proven under Section 273B of the Income Tax Act.
For professional assistance with tax audit compliance under Section 44AB, consult experienced Chartered Accountants to ensure timely reporting and regulatory adherence.
