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Tax Audit Applicability — Sec 44AB Checker.

The ₹1 crore / ₹10 crore business limits, the flat ₹50 lakh profession limit, the two 5%-cash tests, the 44AD / 44ADA presumptive ceilings and the traps under 44AD(4) and 44ADA(4) — answered for one client at a time, with the applicable form and the Sec 271B exposure if missed.

AY 2026-27 seasonReport due 21 October 2026 — extended from 30 September by CBDT (press release of 28 September 2026). The last filing under the current Form 3CD before Form 26 replaces it. Clause 34 (TDS/TCS) explainer →

Inputs

Nature of activity

Turnover / gross receipts (₹ crore)

Limits: ₹1 Cr, or ₹10 Cr where both cash tests pass

Cash receipts ≤ 5% of total receipts?

Cash payments ≤ 5% of total payments?

Cheques/DDs that are not account-payee count as cash for both tests.

Opted presumptive taxation (Sec 44AD)?

Accounts audited under another law (company / co-op / audited LLP)?

Decides Form 3CA vs 3CB if audit applies.

Result

Tax audit required?✗ No

Report form—

Why no audit

Turnover ₹3.5 Cr is within the enhanced ₹10 Cr limit (≤5% cash both ways) — no audit under 44AB(a).

The limits, and the traps around them.

Sec 44AB has grown four moving parts: the base limits (₹1 crore business, ₹50 lakh profession), the digital-economy enhancement for business (₹10 crore where cash receipts AND payments are each ≤5% — there is no such enhancement for a profession, whose audit limit stays at ₹50 lakh), the presumptive ceilings (₹2/₹3 crore for 44AD, ₹50/₹75 lakh for 44ADA), and the opt-out traps — declare below the deemed rate with income above the exemption and the audit becomes compulsory regardless of turnover. A professional with receipts between ₹50 lakh and ₹75 lakh therefore avoids audit only by opting for 44ADA and declaring at least 50%.

Under the Income-tax Act 2025 (tax year 2026-27 onwards)

Tax audit limit for FY 2026-27: Sec 44AB becomes Sec 63; Sec 44AD and 44ADA (with 44AE) merge into Sec 58. The first audits under it are signed in the 2027 season. The audit thresholds in Sec 63 are unchanged — business ₹1 crore (₹10 crore where cash receipts and cash payments are each ≤5%), profession ₹50 lakh — and the presumptive ceilings in Sec 58 stay at ₹2 crore / ₹3 crore and ₹50 lakh / ₹75 lakh. Declaring below the deemed profit with income above the exemption still compels audit (Sec 58(3) and 58(8) read with Sec 63). The report is due one month before the Sec 263(1) return date (old Sec 139(1)) in Form 26, which replaces Forms 3CA / 3CB / 3CD.

What changes for FY 2026-27: the Sec 271B penalty (0.5% of turnover, maximum ₹1,50,000) does not carry over. The Finance Act 2026 replaced it with a fixed fee under Sec 428(c) — ₹75,000 for a delay of up to one month, ₹1,50,000 after that. It is a fee, not a penalty, so the reasonable-cause relief for penalties (Sec 470, old Sec 273B) does not list it. FY 2025-26 audits stay under Sec 44AB and Sec 271B.

3CA vs 3CB vs 3CD explained Form 3CD template

How Section 44AB applicability works

For business, Sec 44AB(a) requires audit where total sales, turnover or gross receipts exceed ₹1 crore. The proviso lifts the limit to ₹10 crore where aggregate cash receipts AND aggregate cash payments each do not exceed 5% of total receipts/payments — and cheques or drafts that are not account-payee are counted as cash for both tests.

For profession, Sec 44AB(b) requires audit where gross receipts exceed ₹50 lakh. That limit is flat. The ₹75 lakh figure introduced by the Finance Act 2023 is the Sec 44ADA presumptive ceiling (available where cash receipts do not exceed 5%), not an audit limit — so a professional with receipts between ₹50 lakh and ₹75 lakh escapes audit only by opting for 44ADA and declaring at least 50% of receipts as income.

The presumptive schemes create their own triggers: an assessee who opted for Sec 44AD and then declares profit below the 8%/6% deemed rate (with total income above the basic exemption) must get audited under Sec 44AB(e) read with 44AD(4); a professional declaring below the 44ADA 50% rate is caught by Sec 44AB(d). The audit report is Form 3CA (accounts already audited under another law) or Form 3CB (others), each with the Form 3CD statement of particulars.

Worked example — the ₹10 crore limit saving an audit

A trading proprietorship has turnover of ₹7.2 crore in FY 2025-26. All sales are collected by bank transfer or account-payee instruments; supplier payments are 2.8% cash (labour and cartage).

Inputs

Turnover₹7.2 Cr

Cash receipts0% — ≤5% test passed

Cash payments2.8% — ≤5% test passed

Applicable limit₹10 Cr (both tests passed)

Output

Tax audit u/s 44AB(a)Not required

If cash payments were 6%Limit falls to ₹1 Cr → audit required

Form if required3CB + 3CD (proprietorship)

Sec 271B exposure₹1.5 L (0.5% capped)

Both 5% tests pass, so the ₹10 crore limit applies and ₹7.2 crore stays inside it. The trap: the tests are independent — 0% cash receipts cannot rescue 6% cash payments. One test failing collapses the limit to ₹1 crore and the audit applies.

Common mistakes

Treating the two 5% tests as one

The ₹10 crore limit needs cash receipts ≤5% AND cash payments ≤5% — independently. Firms routinely check receipts (digital collections are common) and forget the payments side, where cash wages, freight and site expenses sit.

Non-account-payee cheques counted as digital

The provisos deem receipts/payments by cheque or draft that is NOT account-payee to be cash for the 5% tests. A bearer-cheque habit can silently fail the test.

Missing the 44AD(4) five-year lock

Opting out of 44AD (declaring lower profit) after having opted in bars re-entry for five assessment years and — with income above the exemption — compels audit u/s 44AB(e). The audit obligation follows the opt-out even at low turnover.

Using turnover instead of gross receipts for professionals

Professionals are tested on gross receipts against a flat ₹50 lakh (₹75 lakh is only the 44ADA presumptive ceiling, not an audit limit) — not the business limits. A doctor-run pharmacy needs the split: pharmacy turnover against business limits, consultation receipts against profession limits.

Assuming F&O turnover equals contract value

For derivatives, turnover for 44AB is computed from absolute profits/losses (plus premium on options sold, per ICAI guidance) — not the notional contract value. Many demat statements mislead here in both directions.

Frequently asked questions

What is the tax audit limit for FY 2025-26?+

Business: ₹1 crore, enhanced to ₹10 crore where cash receipts and cash payments are each ≤5% of the respective totals. Profession: a flat ₹50 lakh of gross receipts under Sec 44AB(b) — there is no enhanced audit limit for professionals. The presumptive ceilings are separate: ₹2 crore (₹3 crore at ≤5% cash) for 44AD, ₹50 lakh (₹75 lakh at ≤5% cash receipts) for 44ADA. A professional with receipts between ₹50 lakh and ₹75 lakh who does not opt for 44ADA needs an audit; one who opts for 44ADA within the ceiling and declares at least 50% does not.

Is tax audit required if I opt for presumptive taxation?+

Not while you declare at or above the deemed rate within the ceiling. The audit triggers when you declare below the deemed profit rate with total income above the basic exemption — Sec 44AB(e) for business (via 44AD(4)) and 44AB(d) for profession (via 44ADA(4)).

What is the penalty for not doing a tax audit?+

Sec 271B: 0.5% of turnover or gross receipts, capped at ₹1,50,000, unless reasonable cause is shown (Sec 273B). It applies to failure to get audited and to failure to furnish the report by the specified date.

What is the tax audit limit for FY 2026-27 under the Income-tax Act 2025 (new section for 44AB)?+

For FY 2026-27 (tax year 2026-27) the tax audit limit is in Section 63 of the Income-tax Act 2025, which replaces Section 44AB, and it is unchanged: business ₹1 crore (₹10 crore where cash receipts and cash payments are each ≤5%) and profession ₹50 lakh. Sec 44AD and 44ADA are merged into Sec 58 with the same ₹2 crore / ₹3 crore and ₹50 lakh / ₹75 lakh ceilings. What changes for audits signed in 2027 is the consequence of missing the date: the Sec 271B penalty is replaced by a fixed fee under Sec 428(c) — ₹75,000 for a delay of up to one month and ₹1,50,000 thereafter (Finance Act 2026) — and the report is filed in Form 26 instead of Forms 3CA / 3CB / 3CD.

Which form applies — 3CA or 3CB?+

Form 3CA where the accounts are already audited under any other law (companies under the Companies Act, co-operatives under their Acts, and LLPs whose accounts are audited under the LLP Act — turnover above ₹40 lakh or contribution above ₹25 lakh); Form 3CB where they are not (proprietorships, partnership firms, and LLPs below those limits). Form 3CD is annexed in both cases.

What is the due date for the tax audit report?+

The specified date — one month before the Sec 139(1) return due date, ordinarily 30 September. CBDT extends it in some years; check the current notification. For AY 2026-27 (FY 2025-26) the date is 21 October 2026, as extended by CBDT (press release of 28 September 2026), with the return for audit cases moved from 31 October to 21 November 2026. Transfer-pricing cases were not extended: Form 3CEB stays 31 October 2026 and that return 30 November 2026.

Authoritative sources

Section 44AB, Income-tax Act 1961 + ICAI Guidance Note on Tax Audit — Limits reflect the Finance Act 2020 (₹10 Cr proviso) and Finance Act 2023 (₹3 Cr / ₹75 L presumptive ceilings) positions. Verify the current year’s Finance Act before concluding borderline cases.

Always confirm against the latest version of the source. Regulations evolve and amendments are common.

Related calculators

3CA vs 3CB vs 3CD →Sec 44AA books-of-account checker →Tax-audit ceiling (60/partner) →Form 3CD template →269SS/T cash checker →44AB(a): business turnover →44AB(b): professional receipts →44AB(c): 44AE, 44BB, 44BBB →44AB(d): 44ADA lower income →44AB(e): 44AD exit →Tax audit due date: 21 Oct 2026 →

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Last reviewed: 2026-10-01 · For informational purposes only — not professional advice.