The tax audit has a new address. From 1 April 2026, the requirement that lived in section 44AB of the Income-tax Act, 1961 sits in section 63 of the Income-tax Act, 2025. The good news: the limits have not moved. Here is who needs an audit in 2026, which forms apply, and what the new Act actually changes.
First, the transition — which Act applies to you right now
The Income-tax Act, 2025 is in force from 1 April 2026 and applies to income earned from that date — the tax year 2026-27 onwards. But the return you file during 2026, for FY 2025-26 income, is still governed by the 1961 Act. Old section numbers, old forms. So for this filing season, your audit is still “a 44AB audit” on paper. From next year, the same audit is a section 63 audit. Two labels, one obligation.
The 2025 Act also retires the “previous year / assessment year” pairing. There is now a single “tax year” — the financial year in which you earn the income. It is a genuine simplification, and it changes how every notice and form will read.
Who needs a tax audit: the limits
Section 63 (earlier 44AB) keeps the familiar thresholds:
- Business — ₹1 crore of turnover or gross receipts in the year.
- Business, mostly digital — ₹10 crore. The limit rises to ₹10 crore if your cash receipts and cash payments are each 5% or less of the respective totals. In other words, if at least 95% of money in and money out moves through banking channels, you get ten times the headroom.
- Profession — ₹50 lakh of gross receipts, raised to ₹75 lakh where cash receipts are 5% or less.
Separately, taxpayers who were eligible for presumptive taxation under section 58 (earlier 44AD/44ADA) but declare profits below the presumptive rate can be pulled into an audit even at much lower turnover. We cover that route in our guide to what the Income-tax Act 2025 means for your business.
Audit or presumptive? The decision many small businesses skip
For businesses and professionals under the presumptive ceilings, the real question is rarely “do I need an audit” — it is “should I opt for section 58 and avoid the question entirely.” Declare profits at the presumptive rate and you skip detailed books and the audit. Declare less, and the audit machinery can reach you at a fraction of the normal turnover threshold. The choice deserves arithmetic: if your true margins are well below the presumptive rate, paying tax on deemed profits is expensive; if they are at or above it, presumptive buys real simplicity. Decide this at the start of the year, when you can still shape the outcome, not in September.
The 5% cash test, properly understood
The ₹10-crore limit is the most misread rule in this area, so let us be precise. The test has two legs, and you must pass both:
- Cash receipts during the year ≤ 5% of total receipts; and
- Cash payments during the year ≤ 5% of total payments.
A trader with ₹6 crore turnover collected entirely by bank transfer can still fail the test if a meaningful slice of payments — wages, freight, local purchases — goes out in cash. Fail either leg and the limit snaps back to ₹1 crore. The test rewards genuinely digital businesses, not merely digital sales.
The short version
Audit at ₹1 crore of business turnover — or ₹10 crore if cash in and cash out are each within 5%. Professionals: ₹50 lakh, or ₹75 lakh with the cash test. Same numbers under section 63 of the new Act as under 44AB. For AY 2026-27, Forms 3CA/3CB/3CD still apply and audit-case returns are due 31 October 2026.
The forms: 3CA, 3CB and 3CD
For AY 2026-27, the audit reporting forms are unchanged:
- Form 3CA — where the accounts are already audited under another law (a company audited under the Companies Act, for instance). The tax auditor reports with reference to that statutory audit.
- Form 3CB — where there is no other statutory audit. This is the usual form for proprietorships and partnership firms.
- Form 3CD — the detailed statement of particulars that accompanies either report. This is where the real work sits: disallowances, TDS compliance, loans and deposits, GST reconciliation and more.
The 2025 Act will eventually renumber these report forms for tax year 2026-27 audits, but those audits are filed in 2027. For everything you sign this year, the 1961-Act forms stand.
Deadlines, and what missing them costs
For AY 2026-27, returns in audit cases are due 31 October 2026, with the audit report uploaded before the return. Transfer-pricing cases get until 30 November 2026. Non-audit individuals file by 31 July 2026.
Missing the audit deadline exposes you to a turnover-linked penalty under the Act, and a late audit usually drags the return late with it — which means interest and the loss of certain carry-forwards. The fix is unglamorous: close your books early, reconcile GST turnover with the books before the auditor asks, and do not leave the cash-test arithmetic to October.
One more 2026 development worth knowing: ICAI has capped the number of tax audits at 60 per CA partner per year from FY 2026-27. Audit capacity will be tighter in peak season. Businesses that book their auditor in the first quarter, not the last, will feel none of it.
The ₹10-crore limit fails more often on the payments leg than the receipts leg. Everyone digitises their sales; far fewer digitise their wages and freight.
What the auditor will actually ask you for
If an audit is coming, here is the working list that shortens it: the full ledger and trial balance, bank statements for every account, GST returns and a books-to-GSTR reconciliation, the TDS deduction and deposit record for the year, loan and deposit registers (the 3CD asks specifically), fixed-asset additions with invoices, and details of related-party transactions. Most audit delays are not caused by difficult judgements — they are caused by reconciliations that should have existed all year being built in October. A business that closes its books monthly walks through a tax audit; one that closes annually crawls.
How this connects to the rest of your compliance
A tax audit rarely travels alone. The 3CD requires your TDS history — and the TDS sections and forms are being renumbered under the 2025 Act, so your records need to bridge old and new references. The 3CD also reconciles to GST; if your registration status is in flux, start with our guide to GST registration in 2026. And if your turnover sits near a threshold, structure and accounting choices matter — our direct tax and tax audit practice handles this end to end, alongside the firm's statutory audit work.
If you would like a quick read on whether your numbers cross the line this year — or whether the presumptive route under section 58 spares you the audit entirely — write to us and we will look at it with you.
Frequently asked questions
For a business, ₹1 crore — raised to ₹10 crore if both cash receipts and cash payments are 5% or less of the total. For a profession, ₹50 lakh — raised to ₹75 lakh if cash receipts are 5% or less. The limits are the same under section 63 of the Income-tax Act 2025 as they were under section 44AB of the 1961 Act.
The 1961 Act, including section 44AB, still governs FY 2025-26 income and the returns filed during 2026. From 1 April 2026, the tax audit requirement lives in section 63 of the Income-tax Act 2025. The substance — who needs an audit and at what thresholds — is unchanged.
Form 3CA is used when the accounts are already audited under another law, such as a company audit under the Companies Act. Form 3CB is used when there is no other statutory audit, which is typical for proprietorships and most firms. Both are accompanied by Form 3CD, the detailed statement of particulars.
It can. If you were eligible for presumptive taxation but declare profits below the presumptive rate and your income exceeds the basic exemption, an audit is generally required. The presumptive provisions now sit in section 58 of the 2025 Act (earlier 44AD, 44ADA and 44AE).
Audit-case returns for AY 2026-27 are due 31 October 2026, with the audit report filed before the return. Transfer-pricing cases run to 30 November 2026. Confirm the dates for your own case before planning, as the department occasionally extends them.