When is a tax audit under Section 44AB required?

1When a tax audit is required

Section 44AB triggers a mandatory tax audit in these situations:

• Business: turnover over ₹1 crore — but the limit rises to ₹10 crore if cash receipts and cash payments are each 5% or less of the total (i.e. you're almost fully digital)
• Profession: gross receipts over ₹50 lakh
• Presumptive opt-out: you were eligible for 44AD/44ADA but declare profits below the deemed rate (8%/6% or 50%) and your total income exceeds the basic exemption

2What the audit involves

A tax audit isn't the department auditing you — it's a Chartered Accountant examining your accounts and certifying them:

• The CA reviews your books, vouchers and compliance.
• They file the audit report in Form 3CA (if accounts are already audited under another law) or Form 3CB (otherwise), along with the detailed Form 3CD.
• This is submitted on the income-tax portal before you file your return.

3Deadlines and penalty

The tax-audit report is generally due by 30 September of the assessment year (with the ITR due a month later for audit cases). Missing it is costly:

• Penalty under Section 271B: 0.5% of turnover/gross receipts, capped at ₹1,50,000
• The penalty can be waived if you show a reasonable cause for the failure

4The three thresholds, and the cash condition that lifts one

There is no single tax audit limit. Which one applies depends on what you do and how you are paid.

• Business: audit required where turnover exceeds ₹1 crore
• Business with limited cash: the threshold rises to ₹10 crore where cash receipts and cash payments each do not exceed 5% of the total
• Profession: audit required where gross receipts exceed ₹50 lakh

5The presumptive route into audit, which surprises people

A business well under ₹1 crore can still be pushed into audit, and the trigger is opting out of presumptive taxation.

Where you declared under section 44AD in an earlier year and now declare income lower than the deemed percentage, and your total income exceeds the basic exemption limit, an audit is required regardless of turnover. The same applies to a professional declaring below the 50% deemed rate under 44ADA.

This is the practical cost of leaving the presumptive scheme: not only the five-year lock-out under 44AD, but books under section 44AA and an audit under 44AB for the year you step out.

6Two deadlines, not one

A tax audit case has a separate and earlier deadline for the audit report than for the return, and missing the first forfeits nothing but makes the second impossible.

The audit report in Form 3CA or 3CB with the annexure in Form 3CD must be filed by the auditor by 30 September. The return itself is then due by 31 October, a month later.

The penalty under section 271B for failing to get the accounts audited is 0.5% of turnover or gross receipts, capped at ₹1,50,000 — though it is not levied where there is reasonable cause.

7How turnover is measured for the threshold

Turnover is not simply the total credited to the bank, and the measurement decides whether you are in audit at all.

For a trading or manufacturing business it is the sale value of goods, excluding GST where that was collected separately, and net of returns and trade discounts. For speculative and derivative transactions the position is different again — the aggregate of favourable and unfavourable differences is generally taken as turnover rather than the contract value, which is why F&O traders with large notional volumes are often well inside the threshold.

Getting this wrong in either direction is expensive: overstating it produces an unnecessary audit, understating it produces a penalty.