Tax audit under Section 63 (old Section 44AB) — turnover limits and when it applies

Key takeaway

A tax audit is not something the department does to you — it is an audit you are required to get done by a chartered accountant once your business or profession crosses a size threshold, so that your income is verified and reported reliably. The rules live in Section 63 of the Income-tax Act, 2025, the successor to the well-known Section 44AB. The two things that matter are: am I over the limit, and if so, get the audit and file the report by the due date. Miss it and there's a penalty; do it on time and it's a routine annual compliance.

The turnover and receipts limits

The core thresholds are:

• Business: a tax audit is required if total turnover exceeds ₹1 crore in the year.
• The ₹10 crore digital limit: if cash receipts and cash payments are each no more than 5% of the total (i.e. the business is ≥95% digital/banking), the limit rises to ₹10 crore. Most modern, largely-digital businesses fall under this higher limit and don't need an audit until ₹10 crore.
• Profession: a tax audit is required if gross receipts exceed ₹50 lakh in the year.

So a trader doing ₹3 crore almost entirely through bank/UPI needs no audit (under ₹10 crore, ≥95% digital), while a trader doing ₹1.2 crore with significant cash does need one (over ₹1 crore and not 95% digital). The cash proportion is what decides which limit applies to a business.

Presumptive taxation and audit

The presumptive scheme under Section 58 (old 44AD/44ADA) interacts with audit. If you are eligible for presumptive taxation but choose to declare profits lower than the deemed rate (8%/6% for business, 50% for profession) and your total income exceeds the basic exemption limit, then a tax audit becomes applicable even below the normal turnover limits. Similarly, once you opt out of the presumptive scheme you may be locked out for a few years and pushed into audit if you show lower profits. So the decision to declare less than the presumptive figure is exactly what can trigger an audit — plan it deliberately.

Due dates and the forms

For a taxpayer subject to audit, the audit report must be filed by 30 September of the assessment year, and the income-tax return by 31 October (the extended due date for audit cases). The audit is conducted by a practising chartered accountant, who issues the report in Form 3CA (where accounts are already audited under another law, e.g. a company) or Form 3CB (other cases), together with the detailed Form 3CD statement of particulars. You upload these on the portal and then approve them, after which you file your ITR (usually ITR-3, or ITR-5 for firms/LLPs).

The penalty for not getting audited

If you are required to get a tax audit and fail to do so (or fail to file the report on time), the penalty (under the old Section 271B) is 0.5% of total turnover or gross receipts, capped at ₹1.5 lakh. The penalty can be waived if you show a reasonable cause for the failure, but relying on that is risky. Given the cost of the penalty and the disallowances an unaudited-but-required return can attract, getting the audit done on time is far cheaper than skipping it.

"I haven't kept books — how do I show my profit?"

A common situation is a small business owner who never maintained proper books and now needs to report profit. If your turnover is within the presumptive limits, the cleanest route is usually the presumptive scheme (Section 58) — you declare a deemed percentage of turnover as profit and are not required to maintain detailed books or get audited. If you are above the presumptive limits or want to show a lower profit, you must maintain books and get them audited — there is no way to claim a lower actual profit without records to support it. So the practical fork is: stay presumptive and skip books/audit, or keep books and (if over the limit) get audited.

What the auditor actually reviews

A tax audit is a genuine examination, not a rubber stamp. The chartered accountant verifies your books of account, reconciles them with your bank statements, GST returns and TDS, and reports a long list of particulars in Form 3CD — including your method of accounting, stock valuation, depreciation, any payments disallowed for TDS default or cash breaches, loans taken or repaid in cash, and related-party dealings. Because the auditor flags disallowances (for example, expenses paid in cash above the limit, or where TDS wasn't deducted), a clean audit often protects you from those same issues being raised later in a scrutiny. It is worth giving your CA complete records early so the 3CD is accurate — an audit report is only as reliable as the books behind it.

A worked example

Consider a consultant (profession) with ₹62 lakh of gross receipts. Because professional receipts exceed ₹50 lakh, a tax audit under Section 63 is required — unless they use presumptive taxation under Section 58 by declaring at least 50% (₹31 lakh) as income, in which case no audit is needed. Now take a retailer with ₹4 crore turnover, 98% through bank and UPI: cash is under 5% both ways, so the ₹10 crore digital limit applies and no audit is required. Change that retailer to 20% cash: now the ₹1 crore limit applies, they are well over it, and an audit is mandatory. The numbers show how both the size and the cash proportion drive the answer.

Common mistakes to avoid

The frequent errors: assuming the audit limit is always ₹1 crore and missing the ₹10 crore digital limit (or vice-versa, forgetting that heavy cash pulls you back to ₹1 crore); declaring below the presumptive rate without realising it triggers an audit; missing the 30 September report deadline and incurring the penalty; and trying to show low profits with no books, which the department will not accept. Check your turnover and cash mix early in the year, decide presumptive-vs-audit deliberately, keep your books reconciled month by month, and line up your CA well before the 30 September deadline rather than in the final week.

Frequently asked questions

When is a tax audit required under Section 63 (old 44AB)?

When business turnover exceeds ₹1 crore (₹10 crore if at least 95% of receipts and payments are digital), or professional gross receipts exceed ₹50 lakh, or you declare profits below the presumptive rate while your income exceeds the basic exemption.

What is the tax-audit turnover limit for a digital business?

₹10 crore, provided cash receipts and cash payments are each no more than 5% of the total. If cash exceeds 5% either way, the limit drops to ₹1 crore.

What is the penalty for not getting a tax audit?

0.5% of turnover or gross receipts, capped at ₹1.5 lakh (under the old Section 271B), unless you can show a reasonable cause for the failure.

Do I need a tax audit if I use the presumptive scheme?

No, if you declare at least the deemed profit (8%/6% for business, 50% for profession) under Section 58 and stay within its limits. But if you declare less than that and your income exceeds the basic exemption, an audit becomes required.