Section 44AB(a) requires a tax audit when a person carrying on business has total sales, turnover or gross receipts above ₹1 crore in the previous year. The limit rises to ₹10 crore only if cash receipts and cash payments each stay within 5% of the respective totals.
Facts checked: 9 October 2026, for FY 2025-26 / AY 2026-27 under the Income-tax Act, 1961. This is the clause for businesses. Professionals are covered by 44AB(b).
The two thresholds
| Situation | Audit needed when turnover exceeds |
|---|---|
| Ordinary business | ₹1 crore |
| Cash receipts ≤ 5% of total receipts and cash payments ≤ 5% of total payments | ₹10 crore |
Both cash tests must pass. One test passing is not enough. Payments by a non-account-payee cheque or draft count as cash for this purpose.
Worked example
A trader has turnover of ₹8.4 crore.
| Test | Cash | Total | Cash share | Result |
|---|---|---|---|---|
| Receipts | ₹20 lakh | ₹8.40 crore | 2.38% | Pass |
| Payments | ₹50 lakh | ₹7.50 crore | 6.67% | Fail |
The payments test fails, so the ₹10 crore limit is unavailable. Turnover of ₹8.4 crore is above ₹1 crore, so 44AB(a) applies and the audit is required.
Where files go wrong
- Wrong population. The cash tests work on aggregate receipts and payments, not on sales and the P&L expense total. Build the figures from the cash, bank and journal records.
- Turnover definition. Include all sales, turnover or gross receipts of the business. Check how the client treats trading in shares, commodity derivatives and GST. Each has its own reporting convention.
- Assuming a small-turnover client is exempt. A client under ₹1 crore can still need an audit under 44AB(c) or (e). Run all five clauses; see which 44AB clause applies.
What to record in Form 3CD Clause 8
Clause 8 records the section under which the audit is required. For a business above the limit, the entry is 44AB(a). Keep the turnover reconciliation and both cash calculations in the working papers. A reviewer should be able to recompute each percentage.
The Section 44AB applicability checker can run the test once the inputs are ready. The report is due on 21 October 2026 for AY 2026-27 after the CBDT extension; see the due date and 271B penalty note.
Frequently asked questions
Is the ₹10 crore limit automatic for digital businesses?
No. It depends on the cash receipt and cash payment percentages. A business that accepts mostly online payments still fails if payments in cash exceed 5% of total payments.
Does the turnover include GST?
Treatment depends on how the accounts record it. Be consistent, and note the method in the working paper.
Can a business above the limit avoid audit by declaring presumptive income?
Only if it is eligible for the presumptive scheme, and only within that scheme's own limits. Check the conditions before relying on it.
Read the complete guide to section 44AB for the full process.
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