Income Tax Audit: Who Needs It and When Is It Required?

An income tax audit is a mandatory procedure for some business entities, professional firms, and individual taxpayers, based on income tax requirements. The primary criteria for an income tax audit depend upon turnover, gross receipts, and the income reporting method adopted. This guide highlights the people who should have an income tax audit done, when the process should be done, and other compliance information.

What is an Income Tax Audit?

An income tax audit is an audit of the accounts of the taxpayer conducted by a Chartered Accountant. This is done in order to confirm certain information such as the sales, expenditure, income, and other tax-related documents. According to the relevant provisions, the auditor provides certain information to the Income Tax Department through the tax audit report.

Income tax audit services for businesses and professionals can help them organise their records and conduct audits in compliance with the law.

Who Needs an Income Tax Audit?

Every taxpayer does not necessarily have to undergo an audit. The need for an income tax audit would be determined by the type of trade and size of the business or profession, and whether the taxpayer is covered by any of the special provisions of the tax law. At the current levels, business or professional taxpayers can be made liable for audit when they exceed the prescribed limit.

Businesses Crossing the Turnover Limit

For a business, the requirement for audit arises if the total amount of sales, turnover, or gross receipts is more than Rs. 1 crore. It may go up to Rs. 10 crore in case the total cash receipts and cash payments are within the 5% prescribed limit. This is commonly referred to as the tax audit limit for business.

Professionals Crossing the Gross Receipts Limit

An audit may be required for professionals whose total income exceeds Rs. 50 lakh during the concerned financial year. This would be true of professionals who fall under the provisions applicable to them. Hence, the tax audit limit for professionals is different from the general business turnover threshold.

Taxpayers Under Presumptive Taxation

Presumptive taxation is a system whereby eligible taxpayers can use the prescribed procedure in declaring their income without actually calculating the income based on expenses. Some taxpayers might be excluded from the presumptive system and therefore subject to audit.

When is Income Tax Audit Required?

The main situations can be understood through these points:

• Business turnover: The tax audit will be applicable when the sale, turnover, or gross receipts amount exceeds the threshold for the business under consideration.
• Professional income: Professionals could also become subject to audits when the gross receipts surpass the specified limit.
• Presumptive taxation: Taxpayers who make income declarations that are less than the presumptive amounts could also be subject to an audit.
• Other legal audit: The specific type of audit will depend on whether the accounts are supposed to be audited under other law provisions.

These requirements are based on the tax audit under Section 44AB. Businesses and professionals need to verify their turnover, gross receipts, income disclosure, and many other criteria for tax audit applicability for the respective financial year.

Income Tax Audit Due Date

For financial year 2025-26, which corresponds to assessment year 2026-27, the income tax audit due date is 30th September 2026, whereas the relevant ITR last date is 31st October 2026. In case of transfer pricing, the due date of the audit report is 31st October 2026, whereas the ITR last date is 30th November 2026.

Which Forms Are Used for Income Tax Audit?

The following forms are required to be filed in respect of financial year 2025-26 under the provisions of the Income Tax Act, 1961:

• Forms 3CA-3CD: If the account books have to be audited under some other act.
• Form 3CB-3CD: When the accounts are not required to be audited under some other legislation.
• Form 3CD: Contains the prescribed particulars statement concerning the audit.

The CA makes the relevant filing through the e-filing system of the Income Tax Department in electronic form as per the prescribed procedure.

What Does a Tax Audit Report Include?

A tax audit report includes many financial and tax-related items like:

• Basic information of the taxpayer and firm
• Gross income or turnover
• Information about the books of accounts
• Income, expenditure, deductions, and adjustments
• Tax-related items as prescribed

The report is used by the Income Tax Department to go through the information required for proper assessment.

What Happens if Tax Audit is not Completed on Time?

Failure to meet the audit deadline could result in some penalties according to the tax law. The penalty as per the Income Tax Act, 1961 would be around 0.5 per cent of the turnover or gross receipts, subject to a maximum of Rs. 1.5 lakh. Accurate record-keeping and proper audit might help to avoid penalties.

Income Tax Audit vs ITR Filing

The audit report and the income tax return, therefore, represent distinct compliance requirements despite having consistent data.

Conclusion

Understanding the income tax audit requirements is important for any business or professional exceeding the threshold or coming under audit requirements. My Startup Solution offers professional tax audit services along with other related compliance services for businesses. Contact us at +91-7081220800.