The Indian taxation system emphasizes financial transparency and voluntary compliance. One of the most important compliance provisions is the Income Tax Audit, governed by Section 44AB of Income Tax Act, 1961. This provision ensures that businesses and professionals above a specified turnover or gross receipts threshold maintain accountability by getting their accounts audited by a Chartered Accountant.
For India AY 2025-26 tax audit, the limit for tax audit and criteria for compulsory tax audit are crucial for businesses and professionals to avoid penalties. This detailed guide explains the applicability of tax audit, tax audit limit, audit forms, exemptions, penalties, and the overall significance of tax audit under Section 44AB.
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What is Section 44AB?
Section 44AB of Income Tax Act) mandates certain taxpayers to undergo an income tax audit. The audit must be conducted by a Chartered Accountant (CA), and the report should be filed electronically with the Income Tax Department in the prescribed forms.
The primary objective of tax audit under Section 44AB is to:
Verify that the income declared is accurate,
Ensure compliance with the provisions of the Income Tax Act, and
Discourage tax evasion by high-turnover businesses and professionals.
Applicability of Section 44AB
The applicability of tax audit depends on the nature of the assessee (business or professional) and whether presumptive taxation schemes are used. The turnover limit for tax audit is the deciding factor. Section 44AB applies to the following categories of taxpayers:
1. Business- Section 44AB(a)
A business is required to get an income tax audit if its total sales/turnover/gross receipts exceed ₹1 crore in a financial year.
However, the limit for tax audit has been relaxed to ₹10 crore if:
Cash receipts ≤ 5% of total receipts, and
Cash payments ≤ 5% of total payments.
This provision promotes digital transactions and reduces compliance burden for digitally-enabled businesses.
2. Professionals- Section 44AB(b)
Anyone who makes more than ₹50 lakhs in a financial year as a professional (like a doctor, lawyer, architect, or consultant) needs to have their accounts audited.
Presumptive Taxation and Section 44AB
Several taxpayers choose presumptive taxation plans under Sections 44AD, 44ADA, 44AE, 44BB, and 44BBB, which let them declare income at a predetermined rate without keeping detailed books of accounts. When these taxpayers choose not to participate in presumptive schemes, Section 44AB comes into play.
(i) Section 44AB(c) – Business under 44AE/44BB/44BBB
If income is declared below the presumptive rate under these schemes, and total income exceeds the exemption limit, audit under Sec 44AB of Income Tax Act becomes mandatory.
(ii) Section 44AB(d) – Professionals under 44ADA
If a professional under 44ADA of Income Tax Act declares less than 50% of gross receipts as income, and the total income exceeds the exemption limit, audit is compulsory.
This is often referred to as 44AB(d) of Income Tax Act.
(iii) Section 44AB(e) – Business under 44AD
If an assessee eligible under Section 44AD declares income below 8% (or 6% in case of digital receipts) of turnover, and the income exceeds the exemption limit, they must undergo audit.
This provision is popularly known as 44AB(e) of Income Tax Act.
Exemptions from Section 44AB of Income Tax Act
Not every taxpayer is subject to audit. The applicability of tax audit does not extend to the following:
Assessees declaring income under Section 44AD with turnover ≤ ₹2 crore.
Assessees under Sections 44B and 44BBA (non-residents engaged in shipping or aircraft operations).
Assessees are already subject to audit under other laws (e.g., Companies Act, 2013). In such cases, only the additional tax audit report needs to be filed in the prescribed format.
Important Terms Explained
Below are some important terms that have frequently been used in Section 44AB of the Income Tax Act
Turnover/Sales/Gross Receipts: The total revenue from business operations before deducting expenses.
Specified Date: Refers to one month prior to the due date of filing the income tax return (generally, audit reports are to be submitted by 30th September or 31st October, depending on the type of taxpayer).
Accountant: A Chartered Accountant (CA) as defined under Section 288 of the Income Tax Act.
Forms and Procedure
The audit report under Section 44AB must be submitted electronically in:
Form 3CA (if already audited under other laws)
Form 3CB (if not audited under other laws)
Form 3CD: Statement of particulars containing over 40 clauses detailing financial transactions.
Penalty for Non-Compliance
If a person is liable under Section 44AB but fails to comply, the penalty under Section 271B may be levied, which is:
0.5% of turnover/gross receipts, or
₹1,50,000, whichever is lower.
However, if there is reasonable cause (like natural calamity, death, or unavoidable circumstances), the penalty may be waived.
Limit for Tax Audit in India AY 2025-26
For clarity, here’s a summary table of income tax audit limit for AY 2025-26:
Category of Taxpayer | Turnover/Receipts | Criteria for Compulsory Tax Audit |
Business (44AB(a)) | > ₹1 crore | Audit required |
Business (Digital Transactions) | ≤ ₹10 crore | Audit not required if cash ≤ 5% |
Professionals (44AB(b)) | > ₹50 lakh | Audit required |
Business under 44AD | < 8%/6% of turnover & income > exemption | Audit required (44AB(e)) |
Professionals under 44ADA | < 50% of gross receipts & income > exemption | Audit required (44AB(d)) |
Business under 44AE/44BB/44BBB | Income declared < presumptive rate | Audit required (44AB(c)) |
Significance of Section 44AB
Section 44AB ensures accurate income reporting and tax compliance by mandating audits for high-turnover businesses and professionals.
Promotes financial discipline among taxpayers.
Ensures reliable reporting and accurate tax computation.
Acts as a deterrent to tax evasion.
Facilitates the Income Tax Department in cross-verifying returns with audit findings.
Summary
The Income Tax Audit under Section 44AB of Income Tax Act is a cornerstone of compliance for businesses and professionals with high turnover or gross receipts. The tax audit limit for AY 2025-26 in India is ₹1 crore for businesses (₹10 crore if cash ≤ 5%) and ₹50 lakh for professionals, with special rules under 44AB(d) and 44AB(e) for presumptive schemes.
By following the applicability of tax audit, taxpayers can avoid heavy penalties, ensure financial transparency, and strengthen their credibility. In short, the criteria for compulsory tax audit under Sec 44AB are not just about compliance but also about building trust in the economy.
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Section 44AB of Income Tax Act: FAQs
Q1. What is the income tax audit limit for businesses in AY 2025-26?
Businesses must get audited if turnover exceeds ₹1 crore, or ₹10 crore if cash receipts and payments are ≤ 5%.
Q2. What is the tax audit limit for professionals?
Professionals must undergo tax audit if gross receipts exceed ₹50 lakh in a financial year.
Q3. What is Section 44AB(d) of Income Tax Act?
44AB(d) applies to professionals under Section 44ADA who declare income below 50% of receipts and whose total income exceeds the exemption limit.
Q4. What is Section 44AB(e) of Income Tax Act?
44AB(e) applies to businesses under Section 44AD declaring less than 8% (or 6% for digital transactions) of turnover as income, and where total income exceeds exemption limit.
Q5. What is the penalty for not complying with Section 44AB of Income Tax Act?
Penalty is 0.5% of turnover or ₹1,50,000, whichever is lower. Relief may be granted under Section 273B if there is reasonable cause.
