If you run a business or work as a professional, you may have heard about a tax audit. Many people think a tax audit applies to everyone, but that is not true.
The Income Tax Act requires a tax audit only when certain conditions are met.
Understanding these rules can help you stay compliant and avoid unnecessary confusion while filing your income tax return.
What is a Tax Audit?
A tax audit is an examination of your books of account by a qualified accountant. Its purpose is to ensure that your financial records are properly maintained and that your income has been reported correctly under the Income Tax Act.
If you meet the conditions specified under Section 63 of the New Income tax Act 2025 (Section 44AB under the old income tax act 1961), you must get your accounts audited before the prescribed date and submit the required audit report.
A tax audit is not meant to create difficulty for taxpayers. Instead, it helps ensure that financial records are accurate and that tax laws are being followed correctly.
The rule says that any person doing business or profession must get accounts audited under section 63 of the Income tax act, 2025 if certain conditions are met. Let’s break those conditions one by one.
For Business Owners
If you are running any kind of business, you must get your accounts audited if your total sales, turnover, or gross receipts cross ₹1 crore in a tax year.
Example: If your business sales in a tax year are ₹1.2 crore, You need a tax audit.
Special Situation: Less Use of Cash
Now here’s something practical.
If your business mostly runs through bank transactions (not cash), then the limit becomes higher.
This applies when:
- Money received in cash is not more than 5% of total receipts, and
- Money spent in cash is not more than 5% of total payments
In such a case, the tax audit limit under section 63 of the Income tax act, 2025 becomes ₹10 crore instead of ₹1 crore
Example:
- Total sales = ₹8 crore
- Cash receipts = very small (within 5%)
- Cash expenses = also within 5%
- Then tax audit is not required
Earlier, the business limit was ₹1 crore. Now in place of ₹1 crore, you can consider ₹10 crore, but only if the cash conditions mentioned above are satisfied.
For Professionals
If you are working as a professional like Doctors, Chartered Accountants, Lawyers, Consultants or Freelancer, you must get your accounts audited under section 63 of the Income tax act, 2025, if your Gross receipts in profession exceed ₹50 lakh in a tax year.
Example: If a consultant earns ₹60 lakh in a year, Section 63 Tax Audit becomes compulsory.
These limits help determine whether a tax audit is compulsory. If your turnover or receipts remain within the prescribed limits, a tax audit under this section may not be required.
When Declared Income is Lower Than Expected
Some businesses and professionals choose to declare their income under the presumptive taxation scheme. However, if they decide to declare lower profits than the amount prescribed under the law, additional tax audit requirements may apply.
If a person declares lower profits than what is expected under section 58(2) or 61(2) of the new Income tax act, 2025, then tax audit becomes necessary.
In simple terms, If you say your profit is less than what is normally assumed, then you must get your accounts audited from a practicing chartered accountant to support that claim.
In such cases, getting your books audited helps verify the correctness of the income declared.
Tax audit under section 63 will not be applicable where profits and gains of business or profession declared by the assessee is as per the provisions of section 58(2) or 61(2).
When Tax Audit is Not Required
There are situations where an audit is not needed. If your income is already declared properly under certain rules (as mentioned in your content), then this audit requirement does not apply.
What documents must be submitted after completing the Tax Audit?
Getting the audit completed is only one part of the process. The law also requires the taxpayer to submit the audit report within the prescribed time.
The assessee must:
- Obtain the tax audit report from the accountant.
- Ensure that the report is duly signed and verified by the accountant.
- Furnish the report before the specified date in the prescribed form along with the required particulars.
Submitting the report on time is an important part of complying with the tax audit provisions.
What is a “Specified Date”?
“Specified date” means one month before the due date of filing your income tax return as specified under section 263(1).
The due date of filing income tax return where tax audit is applicable is 31st October. Therefore, one month before is 30th September.
Example: If your return filing due date is 31st October, 2027, Tax audit report must be submitted by 30th September, 2027.
If Audit is Already Done Under Another Law
Some businesses are required to get their accounts audited under other laws, such as the Companies Act or other applicable legislation.
In such cases, the requirements of Section 63 are considered satisfied if:
- The accounts have already been audited under that other law before the specified date.
- The assessee furnishes the audit report under that law, along with the accountant’s report in the prescribed form, before the specified date.
This means you do not need to undergo a separate audit solely because of Section 63 of the New Income tax act 2025, provided these conditions are fulfilled.
Example
If your private limited company has a turnover of ₹2 crore in the financial year 2026–27, then it must be audited under company law. Since it is already audited under company law, you do not need a separate audit under income tax law. However, you must upload the audit report along with the required annexures (as per the tax department) before the due date.
Important Rule About Payments
The tax audit provisions contain a special clarification regarding cash transactions.
A payment or receipt made through:
- A cheque drawn on a bank, or
- A bank draft,
which is not an account payee cheque or an account payee bank draft, is deemed to be a cash payment or cash receipt.
This rule is important while calculating whether your cash receipts or cash payments exceed the 5% limit. Simply making a payment through a non-account payee cheque or bank draft does not prevent it from being treated as a cash transaction for this purpose.
Report of Audit of Accounts – If Tax Audit under section 63 is applicable
Once your accounts are audited, you must submit the audit report in a prescribed format. The law has made this process simple by keeping a single standard form for everyone. Here is how it works:
- The audit report must be filed in Form No. 26. This form has replaced the earlier audit forms 3CA, 3CB and 3CD. So from tax year 2026-27 onwards only one standard form i.e. Form 26 is used.
- This applies to:
- Persons already audited under other laws (like companies)
- Persons audited only under income tax provisions
In simple terms, no matter what type of business or profession you have, you don’t need to worry about multiple forms. You just have to remember one thing — Form 26 is compulsory.
This standardization helps the tax department compare and verify data easily, and it also reduces confusion for you.
What Details are Included in Form 26
Now you might be thinking, what exactly goes inside this form? Form 26 is not just a basic report. It is a complete summary of your financial position from a tax perspective. It generally includes:
- Income details of your business or profession
- Expenses claimed
- Disallowances (expenses not allowed under tax rules)
- Compliance with tax provisions
You can think of Form 26 as a final report card of your accounts, which the Assessing Officer uses to check whether your income is correctly reported or not. So, it is very important that this form is accurate and properly prepared.
Revision of Audit Report – When and Why
In real life, business transactions do not always stop neatly before filing the audit report. Sometimes, payments are made later, which can change your tax calculation.
The law understands this situation and allows you to revise your audit report, but only under specific conditions.
You can revise the report if:
- You make a payment after filing the original audit report
- That payment affects disallowances under:
- Section 35, or
- Section 37
For example, suppose you did not pay an expense before filing the audit report, so it was disallowed. Later, you make the payment. Now, that expense may become allowable, and your tax calculation changes.
In such cases, revision is allowed so that your report reflects the correct position.
Time Limit and Procedure for Revision
Even though revision is allowed, it must be done within a fixed time limit. You cannot revise the report anytime you want. Here are the key conditions:
- The revised report must be obtained from an accountant
- It must be signed and verified properly
- It must be submitted before the end of the financial year following the relevant tax year
This means you get a reasonable amount of time, but you still need to act within the deadline. In practice, this ensures that:
- Genuine corrections are allowed
- But unnecessary delays are avoided
The audit report under Section 63 is not just a formality. It is the final step that connects your audit with the tax department. By using a single form (Form 26), the process becomes simple and uniform for everyone.
Penalty for Failure to Get Accounts Audited – Section 446 of the New Income Tax Act, 2025
If a person fails to get their accounts audited or does not submit the audit report as required under Section 63, the Assessing Officer may impose a penalty. The penalty will be the lower of:
- 0.5% of total sales/turnover/gross receipts, or
- ₹1,50,000.
Income-tax Act, 2025 vs Income-tax Act, 1961 (Tax Audit Comparison)
| Particulars | Income-tax Act, 2025 | Income-tax Act, 1961 |
|---|---|---|
| Tax Audit | Section 63 | Section 44AB |
| Audit Report | Form 26 | Form 3CA / 3CB |
| Annexures | Form 26 | Form 3CD |
| Penalty | Section 446 | Section 271B |
| Rules | 47 | 6G |
Conclusion
Tax audit is required when your business or professional income crosses certain limits.
For business:
- ₹1 crore limit
- ₹10 crore if cash use is very low
For professionals the limit is ₹50 lakh.
Audit is also needed if you declare lower income than expected under section 58(2) or 61(2).
Audit report must be submitted before the specified date i.e. 30th September.
If you’re running a business or working independently, it’s always better to check these conditions early—this avoids last-minute confusion.
FAQs: Income Tax Audit and Report under Section 63 of the Income Tax Act, 2025
These FAQs answer both basic and practical doubts that beginners usually have when learning about tax audit filing in India.
What is Form No. 26 in income tax?
Form No. 26 is a tax audit report required under the Income-tax Act, 2025. It contains details about your business or professional income, expenses, and compliance. Think of it like a detailed financial check done by a Chartered Accountant. It helps the government verify your income properly.
Who needs to file Form No. 26?
You need to file it if your business turnover exceeds ₹1 crore or your professional income exceeds ₹50 lakh. Also, if you show lower income under presumptive taxation, this form may apply. Many shop owners, freelancers, and consultants fall under this category.
Is Form No. 26 mandatory for tax audit?
Yes, it is compulsory if you meet the audit conditions under the law. If you skip it, you may face penalties. So if your CA tells you an audit is required, this form must be filed.
What is the due date for filing Form No. 26?
It must be filed one month before your ITR due date. For example, if your return is due on 31 October, Form No. 26 is due by 30 September. Filing on time avoids penalties and stress later.
From which date Form No. 26 applicable?
It applies from 1 April 2026 onwards i.e. FY 2026-27 onwards. Before that, older forms like 3CA, 3CB, and 3CD were used. So this is a new system for tax audits.
What are the main parts of Form No. 26?
It has four parts:
- Part A: Audit report under section 63, in a case where the accounts of business or profession have been audited under any other law
- Part B: Audit report in cases where the accounts of business or profession are not audited under any other law
- Part C: Particulars of the assessee such as Name, Address, Permanent Account Number, Residential status, Email id, Contact number and Tax year.
- Part D: All other particulars required to be furnished under section 63
Each part helps organize information clearly.
Who can sign Form No. 26?
Only a qualified Chartered Accountant (CA) can sign it. They must also generate a UDIN (Unique Document Identification Number). This ensures authenticity and prevents fraud.
What is UDIN and why is it required?
UDIN is a unique number generated by the CA for each document. It proves that the audit report is genuine. Without UDIN, the form is not valid.
How is Form No. 26 filed online?
Your CA prepares and uploads it on the income tax portal using digital signature. After that, you (the taxpayer) must accept it online. Filing is complete only after your approval.
What are schedules in Form No. 26?
Schedules are detailed sections that provide extra information, like expenses or GST details. They are only required when applicable. This makes filing simpler and avoids unnecessary work.
Does Form No. 26 include GST and other taxes?
Yes, if you are registered for GST or other indirect taxes, details must be reported. For example, a shop owner paying GST will need to include relevant information.
What happens if I maintain accounts on software or cloud?
You must ensure your data is accessible in India and backed up daily. Details like server location may need to be reported. This ensures data safety and transparency.
Does Form No. 26 increase compliance burden for small businesses?
Initially, it may feel new and slightly complex. But over time, it actually reduces confusion and repeated notices. It also helps in faster tax processing.
How does Form No. 26 help taxpayers in real life?
It makes tax reporting more clear and structured. This reduces chances of mistakes and tax disputes. For example, a small business owner can avoid unnecessary notices if everything is properly reported.
As you get comfortable with Form No. 26, try exploring related topics like tax audit basics, presumptive taxation, income tax audit report form and ITR filing to build a stronger understanding.
