Direct Tax

Tax Audit under Income Tax Act 2025

Understand when tax audit applies, how turnover and cash transaction thresholds work, and what records usually matter for a clean tax audit process.

NRS Editorial Desk · 2026-06-09 · 5 min read

A tax audit report is a formal examination and verification of a taxpayer's books of accounts, financial statements, and tax-related records conducted by a practising Tax Professional under Section 63 of the Income Tax Act, 2025, corresponding to Section 44AB of the earlier law. The audit ensures that the taxpayer has maintained proper books, reported income accurately, claimed legitimate deductions, and complied with TDS and other tax obligations.

The concept of tax audit was introduced in India in 1984 through the Finance Act, which inserted Section 44AB into the Income Tax Act, 1961. The primary objective was to assist the Income Tax Department in verifying the accuracy of income declarations by taxpayers with significant business turnover. Over the decades, the scope of reporting has expanded significantly. A tax audit serves three primary purposes.

First, it ensures that the taxpayer has maintained proper books of accounts as required under relevant Section of the Income Tax Act.

Second, it provides a structured verification of all deductions, exemptions, and allowances claimed by the taxpayer, preventing over-reporting of expenses.

Third, it creates a detailed record of TDS compliance, GST reconciliation, and related party transactions that the Income Tax Department can reference during assessment proceedings.

Who is liable to get his Accounts Audited under New Income Tax Act, 2025?

Not everyone has to get an audit. It mostly depends on your total sales, turnover, or gross receipts during the financial year.

Business Taxpayers

Standard Limit

If your total sales or turnover cross ₹1 Crore in a year, an audit is mandatory.

For Digital Businesses (The 5% Cash Rule):

To encourage online payments, the government gives a massive relaxation. If your cash receipts and cash payments are both 5% or less of your total transactions, you only need an audit if your turnover crosses ₹10 Crore.
This higher threshold was designed to encourage digital and banking-channel transactions among small and medium businesses.

For Professionals:

If you are a doctor, lawyer, engineer, consultant, or other specified professional, you need an audit if your gross receipts cross ₹50 Lakh.

Presumptive Taxation Opt-Out Cases

Taxpayers who opt for presumptive taxation under Section 58(2) or 61(2) must get a tax audit if they declare income below the prescribed presumptive rates.
Section 58 explains a simple method of paying tax for small businesses and professionals. Instead of calculating actual profit in detail, the law assumes a fixed percentage of income as profit.
For small businesses other than transport businesses, the scheme applies to eligible resident individuals, HUFs, and firms (excluding LLPs) with turnover up to ₹2 crore, or up to ₹3 crore where cash receipts do not exceed 5% of total receipts. Income is deemed to be 6% of digital receipts and 8% of other receipts, or the actual higher profit declared by the assessee.
For businesses engaged in plying, hiring, or leasing goods carriages, the scheme applies where the assessee owns not more than ten goods vehicles during the year. Presumptive income is calculated at ₹1,000 per ton per month for heavy goods vehicles and ₹7,500 per month for other goods carriages, or higher actual profit if declared.
For specified professionals, the scheme applies to resident individuals and firms (excluding LLPs) with gross receipts up to ₹50 lakh, or ₹75 lakh where cash receipts do not exceed 5%. In such cases, 50% of gross receipts are treated as taxable income, unless the assessee declares a higher profit.
If an assessee claims profits lower than the presumptive income and total income exceeds the basic exemption limit, the assessee must maintain books of account and get the accounts audited.

Summary of Section 58 – Special provision for computing profits and gains on presumptive basis

Sl. No.	Specified Business/Profession	Eligible Assessee	Turnover/Gross Receipts Limit	Computation of Income
1	Any business other than goods carriage	Individual, HUF, or firm (not LLP)	(a) ≤ ₹2 crore; OR (b) ≤ ₹3 crore if cash receipts ≤ 5% of turnover	Higher of: (i) 6% of turnover received via banking/online before due date, (ii) 8% of remaining turnover, or (iii) actual profit claimed
2	Business of plying, hiring, or leasing goods carriage	Assessee owning ≤ 10 goods carriages during tax year	Not applicable (based on vehicle ownership)	Higher of: (i) ₹1,000 per ton per month for heavy goods vehicle (>12,000 kg), (ii) ₹7,500 per month per other goods carriage, or (iii) actual profit claimed
3	Specified profession under Sec. 62(4)	Specified assessee (individual/firm, not LLP)	(a) ≤ ₹50 lakh; OR (b) ≤ ₹75 lakh if cash receipts ≤ 5% of gross receipts	Higher of: (i) 50% of gross receipts, or (ii) actual profit claimed

Summary of Tax Audit Conditions

Clause	Requirement / Condition	Threshold / Details
63(1)(a)	Business turnover	Audit required if sales/turnover/gross receipts exceed ₹1 crore in a tax year.
63(1)(b)	Business turnover with limited cash transactions	If cash receipts ≤ 5% and cash payments ≤ 5%, audit threshold increases to ₹10 crore.
63(1)(c)	Profession	Audit required if gross receipts exceed ₹50 lakh in a tax year.
63(1)(2)	Presumptive taxation cases	Audit required if profits declared are lower than deemed profits under Section 58(2) or 61(2).
63(2)	Exception	No audit needed if profits are declared as per Section 58(2) or 61(2).
63(3)	Audit report	Must be furnished by the specified date, signed and verified by an accountant in prescribed form.
63(4)	Other laws	If accounts are audited under another law, compliance is sufficient if audit report + accountant’s report are furnished by the specified date.