Under Section 44AB of the Income Tax Act, 1961, certain taxpayers carrying on business or profession are mandated to have their accounts audited by a Chartered Accountant. The primary objective is to verify the accuracy of the tax return filed and ensure compliance with statutory deductions and claims.

Determining applicability requires evaluating turnover limits, cash transaction percentages, and presumptive taxation rules. Let's break down the rules for Assessment Year (AY) 2025-26 (Financial Year 2024-25).

1. Businesses: The ₹1 Crore vs ₹10 Crore Threshold

The standard threshold for a business tax audit is ₹1 Crore. However, to promote digital payments, the government has raised this threshold to ₹10 Crores under a specific condition.

A business does NOT require a tax audit if its turnover is between ₹1 Crore and ₹10 Crores, provided:

1. Cash Receipts (including sales, turnover, or receipts from loans/investments) do not exceed 5% of total receipts.
2. Cash Payments (including expenses, assets purchase, or repayment of loans) do not exceed 5% of total payments.

If either cash receipts or cash payments exceed the 5% limit, the audit threshold immediately drops back to ₹1 Crore.

2. Professions: The ₹50 Lakhs vs ₹75 Lakhs Threshold

For individuals, partnerships (excluding LLPs), and Hindu Undivided Families (HUFs) carrying on a specified profession (e.g. Legal, Medical, Engineering, Architecture, Accountancy, Technical Consultancy):

• The standard tax audit threshold is ₹50 Lakhs.
• This threshold is extended to ₹75 Lakhs if the cash receipts from the profession do not exceed 5% of the total gross receipts.

3. Interplay with Presumptive Taxation (Sections 44AD & 44ADA)

Many taxpayers are exempt from audits under presumptive tax schemes:

• Section 44AD (Business): Eligible taxpayers with turnover up to ₹3 Crores (provided cash receipts are ≤5%) can declare profit at a rate of 8% (6% for digital receipts) and avoid keeping books of account or undergoing an audit. If they claim profits lower than these rates and their income exceeds the basic exemption limit, an audit is mandatory.
• Section 44ADA (Profession): Eligible professionals with gross receipts up to ₹75 Lakhs (provided cash receipts are ≤5%) can declare 50% of receipts as profit and avoid audits. Again, claiming lower profits triggers an audit.

Due Dates for Filing Tax Audit Reports

The statutory due date for submitting the Tax Audit Report (Form 3CA/3CB and 3CD) is September 30 of the assessment year (one month prior to the income tax return filing due date for audited taxpayers, which is October 31).

Failure to submit the audit report on time attracts a penalty under Section 271B of 0.5% of turnover, capped at a maximum penalty of ₹1.5 Lakhs.