The concept of Tax Audit was introduced under the Income Tax Act, 1961 through Section 44AB, to ensure proper maintenance of books of accounts and the accuracy of the income reported to the Income Tax Department. A tax audit helps prevent tax evasion and ensures that the business complies with various provisions of the law.
For Financial Year 2024–25 (AY 2025–26), the provisions of Section 44AB remain vital for businesses and professionals who cross specified thresholds.
Tax audit is applicable under any of the following circumstances:
Business Assessee wherein gross turnover exceeds Rs. 1 Crores and turnover limit extended to Rs. 10 Crores
Condition for 10 Cr Limit: Cash receipts and cash payments should not exceed 5% of total receipts/payments. Electronic modes should account for at least 95% of transactions.
Note: Payment or receipt by cheque (not account payee) is treated as cash for this purpose.
Gross Receipts exceed | 75 lakhs in the FY |
Section 44AD (Business):
If a person opts out of the presumptive scheme or declares income lower than 8% / 6% (non-cash/cash), and total income exceeds the basic exemption limit, then tax audit is mandatory.
Section 44ADA (Professionals):
If income is declared less than 50% of gross receipts and total income exceeds the exemption limit, then tax audit applies.
Section 44AE (Transporters):
Presumptive income per vehicle. Audit not required unless income shown is less and total income exceeds exemption limit.
Tax Audit for businesses/professionals maintaining books of account: Form 3CB and 3CD.
Where audit is also required under any other law (e.g., Companies Act):Form 3CA and 3CD
Form 3CD is a detailed statement of particulars to be filed along with the audit report.
* Nature of business/profession
* Change in accounting policies or methods
* Disallowance under Sections 40(a), 40A(3), etc.
* Compliance with TDS provisions
* Details of depreciation as per Income Tax
* GST reconciliation
* Employee benefits and bonus payments
* Related party transactions (Section 40A(2)(b))
* Details of loans/advances accepted or repaid in violation of Sections 269SS/269T
Tax Audit Completion & Upload: 30th September 2025 (subject to extension by CBDT)
ITR Filing (Where Audit Applies):31st October 2025
Section 271B: Failure to get accounts audited or furnish audit report attracts a penalty of 0.5% of turnover/gross receipts, subject to a maximum of Rs. 1,50,000.
No penalty if a reasonable cause is demonstrated (e.g., natural calamity, loss of data, illness, etc.)
* Trial balance and ledger accounts
* Bank statements (all accounts)
* Cash book and petty cash register
* Fixed asset register and depreciation details
* Stock valuation and closing stock workings
* GST returns (GSTR-1, 3B, 9, etc.) and reconciliations
* TDS returns (Form 24Q, 26Q) and challans
* Loan/deposit ledgers
* Agreements, contracts, board resolutions (if applicable)
* Investment details, tax payments, and challans
* Incorrect turnover calculation (including GST in turnover)
* Ignoring presumptive tax opt-outs from prior years
* Not reconciling GST turnover with books
* Delay in uploading audit reports despite audit completion
* Misreporting related party transactions or cash dealings
Tax Audit is not just a statutory compliance—it is a powerful tool to review the financial, tax, and operational health of a business. Proper planning, advance preparation, and timely coordination with your auditor can avoid last-minute issues and penalties.
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