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 · Published 2026-06-09 · Updated 2026-08-25 · 5 min read

A tax audit is an examination of a taxpayer's books, financial statements and tax-related records by a practising Chartered Accountant. Section 63 of the Income-tax Act, 2025 corresponds to Section 44AB of the Income-tax Act, 1961, but the applicable Act and reporting form depend on the period being audited.

For financial year 2025–26 (assessment year 2026–27), the Income Tax Department states that tax-audit reporting continues under Section 44AB of the Income-tax Act, 1961 using Form 3CA or 3CB with Form 3CD, as applicable. For tax year 2026–27 under the Income-tax Act, 2025, the Department's current guidance refers to Section 63 and the consolidated Form 26. Taxpayers should confirm the applicable form and due date on the official portal for the relevant year before filing.

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, the audit supports verification of whether the prescribed books and records have been maintained for the applicable tax period.

Second, it requires structured reporting on relevant deductions, exemptions, allowances and other prescribed particulars; the report does not by itself guarantee that every tax position will be accepted.

Third, the prescribed report captures tax-related particulars that may include TDS, indirect-tax and specified-party information, depending on the applicable form and facts.

Who is required to obtain a tax audit?

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):

• Where both cash receipts and cash payments are 5% or less of their respective totals, the higher ₹10 Crore business-turnover threshold may apply, subject to the law and calculation for the relevant year.
• This higher threshold applies only when both sides of the 5% cash condition are satisfied.

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

• Section 63(1), Table Sl. No. 2 covers specified cases under Section 58(2) or 61(2) where profits are claimed below the prescribed deemed amount. The exact audit consequence depends on the provision and conditions that apply to the taxpayer.
• Section 58 consolidates the resident presumptive schemes described in the examples below. Section 61 separately deals with specified non-resident business activities and should not be treated as another resident small-business scheme.
• 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

Summary of Tax Audit Conditions