Tax Audit is the mandatory audit of the accounts of a person carrying on business or profession whose turnover or gross receipts exceed the prescribed threshold, conducted by a chartered accountant who furnishes a report in the prescribed form. Under Indian law, tax audit is governed by Section 44AB of the Income Tax Act, 1961, and the audit report must be submitted electronically before the due date for filing the income tax return.
Legal definition
Section 44AB of the Income Tax Act, 1961 provides:
Every person,—
(a) carrying on business shall, if his total sales, turnover or gross receipts, as the case may be, in business exceed or exceeds one crore rupees in any previous year; or
(b) carrying on profession shall, if his gross receipts in profession exceed fifty lakh rupees in any previous year; or
(c) carrying on the business shall, if the profits and gains from the business are deemed to be the profits and gains of such person under [presumptive taxation provisions] and he has claimed his income to be lower than the profits or gains so deemed to be the profits and gains of his business,
get his accounts of such previous year audited by an accountant before the specified date and furnish by that date the report of such audit in the prescribed form.
Enhanced threshold for digital transactions: Where the aggregate of all receipts and payments in cash during the previous year does not exceed five per cent of total receipts and total payments respectively, the turnover threshold for business under Section 44AB(a) is ten crore rupees (up from one crore rupees). This enhanced threshold was introduced by the Finance Act, 2020 to incentivise digital transactions.
Prescribed forms for the tax audit report:
- Form 3CA: Audit report where the accounts have already been audited under any other law (e.g., Companies Act, 2013).
- Form 3CB: Audit report where the accounts have not been audited under any other law.
- Form 3CD: Statement of particulars — this is the substantive document that provides detailed information required by the tax audit, including: turnover, purchases, stock valuation method, depreciation, loans and advances, compliance with TDS/TCS provisions, deemed income computations, and expenditure disallowances.
Due date: The tax audit report must be furnished on or before September 30 of the assessment year (for persons not required to file a transfer pricing report).
How courts have interpreted this term
CIT v. Jayalakshmi Rice and Oil Mills (1971) 80 ITR 372 (SC)
The Supreme Court, while addressing the importance of proper maintenance and audit of accounts, held that the provisions requiring audit of accounts serve a dual purpose: they enable the tax authorities to verify the correctness of the income returned and they promote financial discipline among business persons. The Court held that the audit requirement is a reasonable regulatory measure and not an unreasonable burden.
Prasad Production Ltd. v. CBDT (Bombay High Court)
The Bombay High Court held that the penalty for failure to get accounts audited under Section 44AB is attracted only when the failure is without reasonable cause. The Court observed that where the assessee made genuine efforts to comply but was prevented by circumstances beyond their control (such as the auditor's inability to complete the audit on time), the penalty may be waived if "reasonable cause" is established under Section 273B.
Why this matters
The tax audit is one of the most significant compliance requirements for businesses and professionals in India. It serves as the first layer of verification before the return reaches the Assessing Officer — the chartered accountant's report provides the Income Tax Department with a pre-verified set of financial information, including details on TDS compliance, specific disallowances under various sections, and potential areas of non-compliance.
For businesses approaching the turnover threshold, the enhanced limit for digital transactions provides a meaningful incentive: businesses that receive and make virtually all payments digitally need not get their accounts audited unless turnover exceeds ten crore rupees. This has been a significant driver of digital adoption among small and medium enterprises.
Practitioners should note the penalty implications of non-compliance. Under Section 271B, failure to get accounts audited as required by Section 44AB attracts a penalty of one-half per cent of total sales, turnover, or gross receipts — or Rs 1,50,000, whichever is less. This penalty applies unless the assessee establishes "reasonable cause" under Section 273B. Additionally, the due date for filing the income tax return for persons subject to tax audit is October 31 (not July 31), giving audited businesses and professionals an extended filing window.
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Frequently asked questions
What is the turnover threshold for mandatory tax audit?
For business, the threshold is one crore rupees (Rs 1 crore) of total sales, turnover, or gross receipts. This threshold is increased to ten crore rupees (Rs 10 crore) if cash receipts and cash payments each do not exceed five per cent of total receipts and total payments respectively. For professionals, the threshold is fifty lakh rupees (Rs 50 lakh) of gross receipts.
Who can conduct a tax audit?
Only a Chartered Accountant within the meaning of the Chartered Accountants Act, 1949 can conduct a tax audit under Section 44AB. The auditor must hold a Certificate of Practice issued by the Institute of Chartered Accountants of India (ICAI). A firm of chartered accountants can also be appointed, with the engagement partner signing the audit report.
What is the penalty for not getting a tax audit done?
Under Section 271B, the penalty for failure to get accounts audited is one-half per cent (0.5%) of the total sales, turnover, or gross receipts — or Rs 1,50,000, whichever is lower. The penalty is not imposed if the assessee proves that there was reasonable cause for the failure under Section 273B.
What is the due date for submitting the tax audit report?
The tax audit report must be furnished electronically on or before September 30 of the relevant assessment year. The income tax return for persons subject to tax audit must be filed by October 31 of the assessment year. For persons also required to furnish a transfer pricing report under Section 92E, the tax audit report due date is October 31, and the return due date is November 30.
This entry is part of the Veritect Indian Legal Glossary, a comprehensive reference of Indian legal terminology grounded in statutory text and judicial interpretation.
Last updated: 2026-03-27. Veritect provides this content for informational purposes and does not constitute legal advice.