Use two independent tests, not a blended percentage
For tax year 2026–27, section 63(1), Table serial 1, of the Income-tax Act, 2025 sets the business turnover threshold above ₹1 crore, with substitution of ₹10 crore where both prescribed cash ratios do not exceed 5%. The receipt side and payment side are separate conditions. This guide addresses that screening for an ordinary business outside the presumptive declaration exceptions; it does not determine every other audit trigger or substitute the new Act's section numbers into an AY 2026–27 return for FY 2025–26. Income-tax Act, 2025, amended by Finance Act, 2026: section 63.
Prepare a complete transaction population
The statutory cash tests refer to aggregate amounts received, including sales/turnover/gross-receipt collections, and aggregate payments, including expenditure payments. A sales-only percentage is not the entire receipt-side test, and a purchases-only percentage is not the entire payment-side test. Reconcile the cash book and bank records to the ledgers. Assess financing flows, transfers and other non-sales movements by their actual legal and accounting character; do not automatically omit them simply because they are outside revenue, or double count one transaction because it appears in two reconciliations. Income-tax Act, 2025, amended by Finance Act, 2026: section 63.
Classify instruments before calculating the ratio
Section 63(5)(b) deems a payment or receipt by a cheque or bank draft that is not account payee to be in cash. Obtain evidence of the instrument's status rather than classifying every banking-channel item as non-cash. Maintain separate columns for physical cash, instruments deemed cash and other modes, with each transaction counted once in the relevant population. The denominator remains the corresponding aggregate, not turnover chosen for convenience. Income-tax Act, 2025, amended by Finance Act, 2026: section 63.
Apply boundaries literally
A ratio equal to 5% satisfies the stated does-not-exceed test; a ratio above 5% does not. Where both tests pass, turnover equal to ₹10 crore does not exceed the enhanced threshold. Where either test fails, return to the ordinary business threshold rather than averaging the ratios. Keep exact fractions or sufficient decimal precision until the conclusion is established; rounding 5.01% down to 5% changes the legal test rather than merely formatting a working paper. Income-tax Act, 2025, amended by Finance Act, 2026: section 63.
Check the rest of section 63 separately
Professional gross receipts have their own provision and should not be given the business threshold merely because the entity has digital collections. Lower-than-deemed-profit claims and declarations under the specified presumptive provisions require separate screening under section 63. A Companies Act audit is not by itself the whole tax-audit compliance analysis: subsection (4) addresses audit under another law together with the prescribed accountant's report. This article's examples assume no separate trigger, exemption or special declaration changes the result. Income-tax Act, 2025, amended by Finance Act, 2026: section 63.
Record the conclusion with its period and evidence
Retain turnover, each numerator and denominator, instrument evidence and the separate-trigger review in one signed working. Section 63 defines the specified audit date by reference to the applicable section 263(1) return due date; establish the taxpayer's actual date and prescribed report separately. Do not copy a prior assessment year's extension into this tax-year screening. Update the ratios for late-posted transactions before finalising the audit applicability conclusion. Income-tax Act, 2025, amended by Finance Act, 2026: section 63.
Applicable primary references
Income-tax Act, 2025, amended by Finance Act, 2026: section 63
Six worked illustrations
All facts and amounts below are fictional. Assumptions describe the model, not additional statutory rules.
Illustrative example 1: Exactly five per cent on both sides
Assume business turnover ₹5 crore, aggregate receipts ₹5 crore with ₹25 lakh cash, and aggregate payments ₹4 crore with ₹20 lakh cash. Both ratios are 5%. The enhanced ₹10 crore threshold applies, so turnover does not trigger audit in this isolated test.
Illustrative example 2: Small excess matters
Aggregate receipts ₹5 crore include ₹25.05 lakh cash: ₹25.05 lakh ÷ ₹500 lakh = 5.01%. With turnover ₹5 crore, the receipt-side failure prevents the enhanced threshold, even if the payment ratio passes. The ordinary ₹1 crore threshold is exceeded.
Illustrative example 3: Do not average two sides
Receipt cash is ₹20 lakh out of ₹500 lakh, or 4%; payment cash is ₹24 lakh out of ₹400 lakh, or 6%. Their simple average is 5%, but the payment test fails. For assumed turnover ₹3 crore, the ordinary threshold is exceeded.
Illustrative example 4: Deemed-cash instruments
Receipts total ₹200 lakh. Physical cash is ₹8 lakh and non-account-payee cheques add ₹3 lakh. Cash for this model is ₹11 lakh, or 5.5%, not 4%. At assumed turnover ₹2 crore the ordinary threshold is exceeded, with other facts unchanged.
Illustrative example 5: Turnover exactly at enhanced boundary
Assume both cash tests pass and business turnover is exactly ₹10 crore. It does not exceed ₹10 crore, so this turnover limb alone does not trigger audit. A change from ₹10 crore to ₹10.01 crore is a ₹1 lakh increase that crosses it.
Illustrative example 6: Enhanced threshold crossed despite digital payments
Business turnover is ₹10.01 crore; both cash ratios are 0%. The enhanced threshold still applies, but turnover exceeds it by ₹1 lakh. Passing the cash tests does not eliminate the turnover ceiling.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Confirm period | Identify tax year 2026–27 and the correct enactment. |
| 2 | Confirm business population | Separate business from professional and special cases. |
| 3 | Reconcile turnover | Tie the annual amount to underlying ledgers. |
| 4 | Build receipt aggregate | Document all classified receipt movements without duplication. |
| 5 | Build payment aggregate | Document the independent payment population. |
| 6 | Identify deemed cash | Check account-payee status of cheques and drafts. |
| 7 | Compute exact ratios | Keep receipt and payment tests separate. |
| 8 | Apply turnover boundary | Use ₹1 crore or ₹10 crore only after the ratio decision. |
| 9 | Review other triggers | Check presumptive provisions and separate tax-audit conditions. |
| 10 | Retain final evidence | Record late entries, applicable report and taxpayer-specific date review. |
Sixteen practitioner FAQs
1. Is this an AY 2026–27 return guide?
No. It addresses tax year 2026–27 under the 2025 Act.
2. Must both ratios pass?
Yes. Receipt and payment conditions are independent.
3. Can the ratios be averaged?
No. An average does not satisfy a failing side.
4. Does exactly 5% pass?
Yes, under the does-not-exceed wording.
5. Can 5.01% be rounded down for eligibility?
No. Preserve the exact boundary result.
6. Is sales collection the only receipt population?
No; the statutory wording concerns aggregate amounts received, including sales-related receipts.
7. Is purchase payment the only payment population?
No; review the broader statutory aggregate.
8. Are all cheques automatically non-cash?
No. The non-account-payee deeming rule must be applied.
9. Does a bank draft always pass as non-cash?
Not if it is not account payee under section 63(5)(b).
10. What happens if only one ratio fails?
The enhanced business turnover threshold is unavailable on that test.
11. Does turnover of exactly ₹10 crore exceed ₹10 crore?
No, with both cash conditions met and other facts as assumed.
12. Does zero cash remove every turnover ceiling?
No. The enhanced threshold remains ₹10 crore.
13. Can a profession use this business threshold automatically?
No. Professional receipts have their own provision.
14. Does a statutory company audit settle tax-audit compliance?
No. Check the prescribed tax-audit reporting requirements and subsection (4).
15. Do presumptive declarations need separate review?
Yes. Section 63 contains specific provisions for them.
16. What should the reviewer see?
Turnover, both complete ratio workings, instrument evidence and the separate-trigger review.
Conclusion
Calculate receipt-side and payment-side cash ratios separately before using the enhanced business tax-audit threshold. Passing one ratio does not compensate for failing the other.