Tax Audit Applicability under Section 44AB: Limits for AY 2026-27

One of the most common questions during tax audit season is: Is tax audit applicable to this client?

For FY 2025-26 / AY 2026-27, tax audit continues to be governed by Section 44AB of the Income-tax Act, 1961. The Income-tax Act, 2025 applies from 1 April 2026 for the new tax year and does not retrospectively change the audit test for FY 2025-26.

Tax audit limit for business

A person carrying on business is generally covered by tax audit where total sales, turnover or gross receipts exceed ₹1 crore during the previous year.

The threshold is increased to ₹10 crore where both of the following conditions are satisfied:

• cash receipts do not exceed 5% of total receipts; and
• cash payments do not exceed 5% of total payments.

Non-account-payee cheques or bank drafts require careful treatment under the statutory rule and should not automatically be treated as qualifying non-cash transactions.

Tax audit limit for profession

For a person carrying on profession, the general Section 44AB threshold is ₹50 lakh of gross receipts.

Professionals eligible for presumptive taxation under Section 44ADA need a separate review because the presumptive scheme can apply up to ₹75 lakh where the prescribed 5% cash-receipt condition is satisfied.

Presumptive taxation can change the answer

The audit conclusion should not be based only on the ₹1 crore, ₹10 crore or ₹50 lakh figures.

Sections 44AD and 44ADA contain their own eligibility conditions, turnover limits and rules for taxpayers who declare income below the prescribed presumptive amount. A taxpayer's prior-year presumptive-tax history may also be relevant.

Practical tax audit applicability checklist

1. Identify whether the activity is business or profession.
2. Determine turnover or gross receipts correctly.
3. For business, check both cash receipts and cash payments for the ₹10 crore test.
4. Check eligibility for Section 44AD, 44ADA or another presumptive provision.
5. Check the profit actually proposed to be declared.
6. Review prior-year presumptive-tax history where relevant.
7. Check whether another law separately requires audit of accounts.

What changes under the Income-tax Act, 2025?

For Tax Year 2026-27, the tax audit provision moves to Section 63 of the Income-tax Act, 2025. The Government has clarified that the core business and professional audit thresholds remain the same. A new unified Form 26 applies to the new-law tax audit framework.

This does not change the forms being used for AY 2026-27, which remain Form 3CA/3CB with Form 3CD.

Prepare stable financials before concluding the audit file

Several Form 3CD clauses depend on the final books, depreciation, MSME balances, TDS, GST and year-end adjustments. Completing tax audit reporting against a moving Trial Balance creates unnecessary rework.

assureOffice Financial Builder can prepare structured financial statements from Tally or old-format Excel so that the financial statement layer can be reviewed before tax audit reporting is finalised.

Tax audit applicability is a legal conclusion, not just a turnover check. Review the taxpayer's facts and the law applicable to the relevant year before finalising the position.