Tax Audit Under Section 63 of Income Tax Act 2025: Thresholds, Applicability & Compliance Guide
Introduction
Tax audit is one of the most important compliance requirements for businesses and professionals whose turnover, receipts or circumstances fall within the prescribed provisions of the Income Tax Act.
With the introduction of the Income Tax Act, 2025, the tax-audit provision has been reorganised under Section 63, broadly corresponding to Section 44AB of the Income-tax Act, 1961.
One of the most important points for taxpayers is that the basic tax-audit thresholds have not changed under the new Act. The Income Tax Department has confirmed that the thresholds under Section 63 remain the same as under the earlier framework.
However, the reporting framework has changed.
For Tax Year 2026-27, taxpayers subject to tax audit will use the new Form 26, which consolidates the erstwhile Forms 3CA, 3CB and 3CD.
This creates an important distinction:
Section 63 determines whether tax audit is required, while Form 26 determines how the audit report is reported for Tax Year 2026-27.
This article explains the tax-audit thresholds, applicability, presumptive-taxation implications, important transition rules and practical compliance requirements under the Income Tax Act, 2025.
Table of Contents
- What Is Tax Audit?
- What Is Section 63 of the Income Tax Act 2025?
- Tax Audit Thresholds Under Section 63
- Tax Audit for Businesses
- ₹1 Crore vs ₹10 Crore Threshold
- Tax Audit for Professionals
- Tax Audit and Presumptive Taxation
- When Does Tax Audit Become Mandatory?
- Tax Audit for Traders
- Tax Audit for F&O and Intraday Traders
- Tax Audit for LLPs, Firms and Companies
- Form 26 Under the New Act
- FY 2025-26 vs Tax Year 2026-27
- Tax Audit Due Date
- Documents Required for Tax Audit
- Practical Examples
- Common Tax Audit Mistakes
- Tax Audit Compliance Checklist
- Conclusion
- FAQs
What Is Tax Audit?
A tax audit is an examination of specified books of accounts and financial information by a Chartered Accountant to report prescribed particulars to the Income Tax Department.
The objective is to improve the accuracy and reliability of tax reporting and provide the tax authorities with relevant information about the taxpayer's business or profession.
Tax audit should not be confused with a statutory audit.
Statutory Audit
A statutory audit may be required under:
- Companies Act
- LLP Act
- Other applicable laws
Tax Audit
Tax audit is required under the Income Tax Act when the taxpayer falls within the prescribed conditions.
A business may therefore have:
Statutory Audit + Tax Audit
or
Tax Audit only
depending on its legal structure and circumstances.
What Is Section 63 of the Income Tax Act 2025?
Section 63 of the Income Tax Act, 2025 deals with the requirement for certain taxpayers carrying on business or profession to get their accounts audited.
It broadly corresponds to Section 44AB of the Income-tax Act, 1961.
The important point is that the new Act has reorganised the provision, but the Income Tax Department confirms that the tax-audit thresholds remain unchanged.
Therefore, businesses should not assume that the introduction of the new Act automatically means a new turnover limit for tax audit.
Tax Audit Thresholds Under Section 63
The broad thresholds are:
| Taxpayer | General Threshold |
|---|---|
| Business | Turnover exceeding ₹1 crore |
| Business with specified low cash transactions | Turnover exceeding ₹10 crore |
| Profession | Gross receipts exceeding ₹50 lakh |
| Certain presumptive-taxation cases | Audit may apply where prescribed conditions are not met |
The ₹10 crore business threshold applies where the specified cash receipt and cash payment conditions are satisfied, including the requirement that cash receipts and cash payments do not exceed 5% of the relevant totals.
Tax Audit for Businesses
For a person carrying on business, tax audit generally becomes applicable when:
Total sales, turnover or gross receipts exceed ₹1 crore
However, there is an enhanced threshold of:
₹10 crore
where the prescribed conditions relating to cash transactions are satisfied.
This distinction is particularly important for SMEs and trading businesses.
₹1 Crore vs ₹10 Crore Tax Audit Threshold
Let's understand this with a simple example.
Example 1: ₹1.20 Crore Turnover
A business has:
Turnover: ₹1.20 crore
Cash receipts and cash payments are within the prescribed limits.
If the conditions for the higher threshold are satisfied, the business may not be required to undergo tax audit solely because turnover exceeds ₹1 crore.
Example 2: ₹1.20 Crore Turnover With Significant Cash Transactions
Suppose the same business has substantial cash receipts or payments exceeding the specified 5% conditions.
The enhanced ₹10 crore threshold may not be available.
Therefore, the business may become subject to tax audit once the general ₹1 crore threshold is crossed.
Key Lesson
Don't look only at turnover.
Also examine the cash receipt and cash payment percentages.
Tax Audit for Professionals
For specified professionals, the general tax-audit threshold is:
₹50 lakh of gross receipts
Examples may include eligible:
- Legal professionals
- Medical professionals
- Architects
- Accountants
- Engineers
- Consultants
- Other notified professionals
The exact applicability should be evaluated based on the nature of the profession and the provisions applicable to the taxpayer.
Tax Audit and Presumptive Taxation
Presumptive taxation is designed to simplify tax compliance for eligible small businesses and professionals.
Common presumptive taxation provisions include:
- Section 44AD
- Section 44ADA
- Section 44AE
under the earlier framework, with corresponding provisions under the new Act.
However, choosing presumptive taxation does not always mean that tax audit is automatically avoided.
The taxpayer must examine:
- Eligibility
- Turnover/gross receipts
- Income declared
- Whether the taxpayer opts out of the scheme
- Whether the applicable conditions are satisfied
The Income Tax Department specifically includes persons opting out of presumptive taxation and declaring income below the prescribed threshold among circumstances where tax audit can become applicable.
When Does Tax Audit Become Mandatory?
A business should evaluate tax-audit applicability through a structured process.
Step 1: Determine the Nature of Activity
Is it:
- Business?
- Profession?
- Trading?
- Manufacturing?
- F&O trading?
- Intraday trading?
- Consultancy?
Step 2: Calculate Turnover or Gross Receipts
Don't simply look at bank credits.
Determine turnover according to the applicable income-tax principles.
Step 3: Check Cash Transactions
For businesses around the ₹1 crore threshold, calculate:
Cash Receipts ÷ Total Receipts
and
Cash Payments ÷ Total Payments
to determine whether the enhanced ₹10 crore threshold conditions are satisfied.
Step 4: Check Presumptive Taxation
Determine whether the taxpayer:
- Is eligible
- Has opted for the scheme
- Has complied with its conditions
- Has declared income at the required level
Step 5: Determine Audit Applicability
Only after these steps should the taxpayer conclude whether Section 63 requires an audit.
Tax Audit for Traders
Trading businesses require special attention because turnover for tax purposes may not always equal the total value of transactions appearing in broker statements or contract notes.
For example, different methods may apply depending on whether the taxpayer is engaged in:
- Delivery-based share trading
- Intraday equity trading
- Futures trading
- Options trading
- Commodity trading
- Currency derivatives
Therefore, traders should determine the appropriate tax turnover before evaluating tax-audit applicability.
Tax Audit for F&O and Intraday Traders
F&O and intraday trading can create confusion because taxpayers sometimes incorrectly use the total value of buy and sell transactions as their tax-audit turnover.
For tax purposes, turnover is generally determined using the applicable principles for the particular type of trading activity.
For example, F&O turnover typically involves consideration of the aggregate of favourable and unfavourable differences, along with other relevant items under applicable tax guidance.
Similarly, intraday equity trading requires a separate turnover calculation.
Therefore:
Broker turnover ≠ Automatically Tax Audit Turnover
Traders should prepare a proper tax-turnover working before determining whether Section 63 applies.
Tax Audit for LLPs, Firms and Companies
The legal structure of the business does not by itself determine whether tax audit is required.
An:
- LLP
- Partnership firm
- Private Limited Company
- Proprietorship
may all need to evaluate Section 63 based on the applicable conditions.
For example, a private limited company may already be subject to statutory audit under corporate law, but it may also need a tax audit under Section 63.
These are separate compliance requirements.
Form 26 Under the New Income Tax Act
For Tax Year 2026-27, tax-audit reporting moves to:
Form 26
The new Form 26 consolidates the earlier:
- Form 3CA
- Form 3CB
- Form 3CD
into a single unified Tax Audit Report.
The new form introduces:
- Structured reporting
- Rationalised disclosures
- Separate schedules
- Better alignment with the ITR framework
- Mandatory auditor membership number
- Firm registration number
- UDIN disclosure
FY 2025-26 vs Tax Year 2026-27
This transition deserves special attention.
| Particular | FY 2025-26 | Tax Year 2026-27 |
|---|---|---|
| Period | 1 Apr 2025 – 31 Mar 2026 | 1 Apr 2026 – 31 Mar 2027 |
| Governing Act | Income-tax Act, 1961 | Income Tax Act, 2025 |
| Terminology | Previous Year / AY | Tax Year |
| Tax Audit Provision | Section 44AB | Section 63 |
| Audit Form | 3CA/3CB + 3CD | Form 26 |
| General Business Threshold | ₹1 crore | ₹1 crore |
| Enhanced Threshold | ₹10 crore subject to conditions | ₹10 crore subject to conditions |
| Professional Threshold | ₹50 lakh | ₹50 lakh |
The Income Tax Department has specifically clarified that the tax-audit report for FY 2025-26 / AY 2026-27 continues to be governed by the old Act and uses the existing forms, even if the report is filed after 1 April 2026.
Tax Audit Due Date for Tax Year 2026-27
For Tax Year 2026-27, the tax-audit report is required to be furnished in Form 26.
The currently prescribed due date is:
30 September 2027
The Income Tax Department has specified this date for tax-audit reporting for Tax Year 2026-27.
Taxpayers should always verify whether any subsequent notification changes the applicable due date.
Documents Required for Tax Audit
A proper tax-audit process requires more than a Profit & Loss Account.
Businesses should generally keep the following information ready:
Accounting Records
- General ledger
- Cash book
- Bank book
- Sales register
- Purchase register
- Expense ledgers
- Debtors ledger
- Creditors ledger
Tax Records
- GST returns
- TDS returns
- Tax payment records
- Income-tax computations
- Advance-tax details
Supporting Documents
- Sales invoices
- Purchase invoices
- Expense invoices
- Agreements
- Loan documents
- Fixed-asset records
Special Records
- Inventory statements
- Depreciation schedule
- MSME creditor details
- Related-party transaction details
- Cash transaction summary
- Loans and advances
- Previous-year tax records
Tax Audit Compliance Process
A practical tax-audit workflow can be divided into six stages.
Stage 1: Book Closure
Complete accounting records and reconcile all major ledgers.
Stage 2: Tax Reconciliation
Compare:
Books ↔ GST ↔ TDS ↔ Tax Records
Stage 3: Tax Computation
Calculate:
- Business income
- Depreciation
- Deductions
- Disallowances
- Taxable income
Stage 4: Audit Review
The tax auditor examines the relevant records and information required for the audit report.
Stage 5: Form 26 Preparation
For Tax Year 2026-27 onwards, the applicable information is reported through Form 26.
Stage 6: ITR Filing
The taxpayer files the applicable Income Tax Return using the relevant information from the accounts, tax computation and audit report.
Practical Example: Small Business
ABC Traders has:
Turnover: ₹2.50 crore
Cash receipts: 2% of total receipts
Cash payments: 3% of total payments
Because the business satisfies the specified cash conditions, the enhanced turnover threshold may be relevant.
Therefore, the business should not conclude that tax audit is mandatory merely because its turnover exceeds ₹1 crore.
Practical Example: Professional
A consultant earns:
Gross receipts: ₹65 lakh
Since the professional's receipts exceed the applicable ₹50 lakh threshold, tax-audit applicability needs to be examined.
The fact that the professional has only a small number of clients does not by itself eliminate the tax-audit requirement.
Practical Example: Presumptive Taxation
A small business is eligible for presumptive taxation but decides to declare actual profit significantly below the prescribed presumptive percentage.
Depending on the applicable conditions, tax audit may become mandatory.
Therefore, businesses opting for regular taxation or moving out of presumptive taxation should evaluate the audit consequences before filing the return.
Common Tax Audit Mistakes
1. Looking Only at Turnover
Tax audit applicability is not always determined by turnover alone.
Cash transactions and presumptive-taxation provisions can also matter.
2. Confusing GST Turnover With Income-Tax Turnover
GST and Income Tax have different legal frameworks.
The turnover figure used for one purpose should not automatically be copied into the other.
3. Using Broker Turnover for Trading Audit
Traders should calculate tax turnover according to applicable principles instead of simply using the turnover shown in a broker statement.
4. Ignoring Presumptive Taxation Rules
A taxpayer opting out of presumptive taxation may face audit implications.
5. Waiting Until September
Tax-audit preparation should begin well before the due date.
6. Poor Cash Transaction Records
Businesses close to the ₹1 crore threshold should maintain accurate cash receipt and payment records because the 5% test can affect the applicable threshold.
Tax Audit Compliance Checklist
Business
Calculate correct turnover.
Determine cash receipts percentage.
Determine cash payments percentage.
Check Section 63 applicability.
Review presumptive-taxation eligibility.
Reconcile GST turnover with books.
Reconcile TDS information.
Review disallowable expenses.
Review depreciation.
Review MSME payments.
Review related-party transactions.
Prepare tax computation.
Maintain supporting documents.
Professionals
Calculate gross receipts.
Check ₹50 lakh threshold.
Review presumptive-taxation eligibility.
Check income declared.
Maintain professional expense records.
Reconcile bank receipts with books.
Prepare tax computation.
Traders
Identify nature of trading.
Obtain broker statements.
Calculate tax turnover correctly.
Separate delivery and non-delivery transactions.
Calculate F&O turnover where applicable.
Calculate intraday turnover where applicable.
Determine audit applicability.
Reconcile trading P&L with books.
Why Businesses Should Prepare Early
Tax audit is not merely a form submission.
It is the final output of an entire financial reporting process.
If books contain:
- Unreconciled GST
- Incorrect expenses
- Unrecorded liabilities
- Missing invoices
- Incorrect depreciation
- Unreconciled bank entries
the tax-audit process becomes more complicated.
A business that performs monthly accounting and quarterly tax reviews will generally be much better prepared.
Conclusion
Tax Audit Under Section 63 of the Income Tax Act, 2025 is an important compliance requirement for businesses, professionals and certain taxpayers opting out of presumptive taxation.
The good news for businesses is that the basic tax-audit thresholds remain unchanged:
- ₹1 crore for businesses generally
- ₹10 crore where the specified cash transaction conditions are satisfied
- ₹50 lakh for specified professionals
However, determining tax-audit applicability requires more than simply looking at turnover. Businesses must also consider cash transactions, presumptive taxation, the nature of their activities and the applicable provisions.
For Tax Year 2026-27, the reporting framework also changes significantly because tax audits will be reported through Form 26, replacing the earlier Form 3CA/3CB + Form 3CD structure.
The most important transition to remember is:
FY 2025-26 / AY 2026-27 → Income-tax Act, 1961 → Form 3CA/3CB + Form 3CD
Tax Year 2026-27 → Income Tax Act, 2025 → Section 63 → Form 26
Businesses should therefore start preparing their accounting, reconciliation and tax records well before the tax-audit deadline.
A well-maintained accounting system is not just useful for tax audit—it is the foundation for better tax planning, financial reporting and business decision-making.
Frequently Asked Questions
1. What is Section 63 of the Income Tax Act 2025?
Section 63 of the Income Tax Act, 2025 contains the tax-audit requirement and broadly corresponds to Section 44AB of the Income-tax Act, 1961.
2. What is the tax-audit limit for businesses under the new Income Tax Act?
The general threshold is ₹1 crore. It increases to ₹10 crore where the specified conditions relating to cash receipts and cash payments are satisfied.
3. What is the tax-audit limit for professionals?
The general threshold for specified professions is ₹50 lakh of gross receipts.
4. Has the tax-audit threshold changed under the Income Tax Act 2025?
No. The Income Tax Department has confirmed that the tax-audit thresholds remain the same as under the earlier framework.
5. Does crossing ₹1 crore turnover always mean tax audit is mandatory?
Not necessarily. Where the conditions for the enhanced ₹10 crore threshold are satisfied, a business with turnover above ₹1 crore but not exceeding ₹10 crore may fall outside the tax-audit requirement on turnover grounds.
6. What is the 5% condition for the ₹10 crore threshold?
The enhanced threshold applies where cash receipts and cash payments do not exceed the prescribed 5% limits of the relevant totals, subject to the exact statutory conditions.
7. What is the tax-audit form under the new Income Tax Act?
For Tax Year 2026-27, tax audit is reported through Form 26.
8. Is Form 26 applicable to FY 2025-26?
No. FY 2025-26 / AY 2026-27 continues under the Income-tax Act, 1961 and the applicable forms are Form 3CA/3CB and Form 3CD.
9. Does a company need both statutory audit and tax audit?
Potentially, yes. Statutory audit and tax audit arise under different legal provisions and one does not automatically replace the other.
10. Do traders need to calculate turnover differently for tax audit?
Yes. Depending on the nature of trading activity, such as F&O or intraday trading, tax turnover may be determined differently from the gross value of transactions shown in broker statements.
At Verotus Finlegal Solutions LLP, we help businesses, professionals, traders, startups and SMEs understand and comply with changing income-tax requirements.
Our services include Tax Audit Support, Accounting & Bookkeeping, Income Tax Compliance, Tax Planning, GST Reconciliation, Financial Statement Review and Business Advisory.
If you are unsure whether your business falls under Section 63, whether the ₹1 crore or ₹10 crore threshold applies, how presumptive taxation affects your audit requirement, or how your trading turnover should be calculated, our professionals can review your records and help determine the appropriate compliance approach.
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