Complete Guide for Income Tax Audit Under Section 44AB

An Income Tax Audit is an examination of a business's or profession';s books of accounts by a qualified professional. Under Section 44AB of the Income Tax Act, every business whose turnover exceeds Rs. 1 crore must have a tax audit. However, this threshold increases to Rs. 10 crore if 95% or more of all business transactions are digital. Similarly, a professional must undergo a tax audit if the gross receipts exceed Rs. 50 lakh in any previous year. The due date for filing the tax audit for FY 2025-2026 (AY 2026-27) is the 30th of September, 2026, for income tax purposes. For taxpayers requiring a transfer pricing audit, the deadline is 31st of October, 2026. 

If you fail to get the tax audit done within the due date, either Rs. 1,50,000 or 0.5% of the overall sales, turnover, or gross receipts will be levied as a fee. As proposed in Budget 2026, this will be treated as a fee and not as a penalty. Additionally, a taxpayer need not get their tax audit done if they got their books of accounts audited under any other law. Instead, they can simply furnish their audit report before the deadline. The taxpayer must submit their audit report in the specified form and submit it online using their login details in the capacity of 'CA'. Keep reading further to know more about the income tax audit under section 44AB. 

What is Tax Audit Under Section 44AB? 

A tax audit is the process by which a qualified professional examines a business or profession's book of accounts in detail. Taxpayers are responsible for carrying out the tax audit from an income tax viewpoint. Under Section 44AB of the Income Tax Act, every business having a turnover of more than Rs. 1 crore or Rs. 10 crore (when more than 95% of receipts are digital) must undergo a tax audit. 

For a professional, if gross receipts exceed Rs. 50 lakh in any previous year, tax audit becomes mandatory. 

What is the Due Date for the Tax Audit in 2026?

For Financial Year (FY) 2025-2026 (AY 2026-2027), the last date for completing the tax audit for income tax purposes is 30th of September 2026. For assesses covered by the provisions of the transfer pricing audit, the last date for completing the tax audit is 31st of October, 2026. 

What are the Objectives of Tax Audit?

A tax audit is carried out to achieve the following objectives:

• Auditing makes calculating taxes and deductions easier. 
• Reporting observations/discrepancies identified by the tax auditor after a methodical examination of the books of account.
• The main aim is to check and verify all the information filed in the income tax return related to income tax, and deductions by the assessee. 
• Helps in the proper maintenance and correctness of the books of accounts and certification of the same by a CA (tax auditor). 
• To report specified information like tax depreciation, adherence with different income tax law provisions, etc. 

A tax audit helps tax authorities to verify the accuracy of income tax returns filed by the taxpayer. It also makes it easy to calculate and verify the overall income, claim deductions, etc. 

What is the Turnover Limit for Income Tax Audit?

If the turnover or gross receipts of the business exceed INR 1 crore in a financial year or INR 10 crore if cash receipts and payments comprise 5% or less of total transactions, then a taxpayer must conduct a tax audit. Additionally, a tax audit for professionals is mandatory if gross payments exceed Rs. 50 lakhs in the financial year. Apart from this, a taxpayer may have to audit their account in the following situations:

The table below lists the categories of taxpayers who must conduct a tax audit of their books of account under Section 44AB of the Income Tax Act, 1961:

Situations Where Accounts are Audited Under Any Other Law 

If a taxpayer got his books of accounts audited under any other law, they need not conduct the audit again for taxation purposes. They just need to submit the audit report** before the deadline for filing the return as per the income tax law.

**Audit Report: An audit report is a summary of an organization's financial statements, internal controls, and accounting practices. It determines whether the financials are accurate, complete, and in compliance with the accounting standards (e.g., GAAP). 

What Constitutes an Audit Report? 

The tax auditor must submit their audit report in a specified form, which could be either Form 3CA or Form 3CB, where:

• Form 3CA: It is used when a person carrying on a business or profession already has to get their accounts audited under any other law. 
• Form 3CB: It is used when a person carrying on a business or profession doesn't need to get their accounts audited under any other law. 
• Form No. 3CE: It is used when non-residents and foreign companies get royalties or fees for technical services from an Indian concern or government. 
• Form No. 3CD: It contains important information like your turnover, expenses, assets, liabilities, etc., and it must be mandatorily filed along with either Form 3CA or 3CB. 

How to Submit Tax Audit Reports? 

The tax auditor should submit a tax audit report online to the Income Tax Department via their official e-filing portal using their login details in the role of a 'Chartered Accountant.' Taxpayers must also add the details of the CA in their login portal. 

After the tax auditor uploads the audit report, the taxpayer needs to either accept or reject it in their login portal. In case the report is rejected for any reason, every procedure and step must be followed again until the taxpayer accepts the audit report. 

Penalty for Non-Filing or Delay in Filing Tax Audit Report

If a taxpayer fails to get the tax audit done, the least of the following may be charged as a fee:

• Rs. 1,50,000
• 0.5% of the overall sales, turnover, or gross receipts. 

However, if you have a valid cause for not filing the audit, no penalty may be charged under Section 271B. Also, this will now be treated as a fee and not a penalty as proposed in Budget 2026. 

Reasonable Causes for Non-Filing Tax Audit Reports

Here are the causes accepted by Tribunals/ Courts for delays in filing tax audit reports:

• Natural Calamities
• Resignation of the main employees/ accountant
• Tax Auditor's resignation and consequent delays
• Physical disability or the partner's death, who was in charge of the accounts. 
• Labour problems like strikes and lock-outs for a longer period. 
• Loss of accounts due to out-of-control situations of the taxpayer.

Bottom Line

Conducting a tax audit is mandatory for businesses/professions that exceed a specific turnover limit to ensure adherence with the law as per the Income Tax Act, 1961. Staying aware of the provisions can help avoid penalties, disallowances, and any legal consequences. Additionally, seeking professional advice from an expert at Savetaxs can help avoid any legal issues. We at Savetaxs have a team of experts who can guide with the entire tax audit process and ensure timely and accurate filing. They can clear all your queries and help you minimize your tax liability and avoid complications. Connect with us right away as we are working 24*7 across all time zones.