Whether a tax audit applies to you is not simply a question of turnover. The threshold doubles from one crore to ten crore where cash receipts and cash payments each stay within 5% of the total — and it can apply well below any of those figures if you have opted out of presumptive taxation. Getting the applicability question right is the first piece of work, and it is the one most often assumed rather than checked.
Does Section 44AB apply to you?
| Who you are | Audit required when | Note |
|---|---|---|
| Business | Total sales or turnover exceeds ₹1 crore | Standard threshold |
| Business, largely non-cash | Turnover exceeds ₹10 crore | Applies only if cash receipts and cash payments are each within 5% of the total |
| Profession | Gross receipts exceed ₹50 lakh | No enhanced limit |
| Opted out of 44AD | Income declared below the presumptive rate and total income exceeds the basic exemption limit | Audit can apply far below ₹1 crore |
| Under 44ADA | Income declared below 50% of gross receipts and total income exceeds the basic exemption limit | Professionals |
The presumptive trap
Section 44AD is designed to keep small businesses out of audit: declare 8% of turnover as income (6% for digital receipts) and no books or audit are required. But if you have used 44AD and then in a later year declare income below the presumptive rate, you lose eligibility for the following five assessment years — and in each of those years, audit applies if your total income crosses the basic exemption limit. A single loss year can therefore pull a small business into audit for years afterwards.
Which form applies
- Form 3CA — where the accounts are already required to be audited under another law, such as a company audited under the Companies Act. The tax audit report is then annexed to that audit.
- Form 3CB — where no other audit is required, which covers most proprietorships and partnership firms.
- Form 3CD — the statement of particulars, filed alongside either of the above. This is the substance of the audit.
Form 3CD is where the work sits
Form 3CD runs to more than forty clauses and functions as a structured disclosure of your tax position. Several clauses routinely generate departmental follow-up, and the reporting decisions on them deserve a conversation rather than a silent entry:
- Payments disallowed under Section 40(a) for TDS default
- Cash payments above the Section 40A(3) limit
- Employee contributions to PF and ESI deposited after the due date under the relevant Act — disallowed outright, and a very common adjustment
- Loans and deposits accepted or repaid in contravention of Sections 269SS and 269T
- Amounts payable to micro and small enterprises beyond the time limit under Section 43B(h)
Due dates and the cost of missing them
For a taxpayer subject to tax audit, the audit report is due by 30 September of the assessment year, with the income tax return due by 31 October. Both dates have been extended by the CBDT in several recent years, but planning on an extension is not a strategy.
Failure to get the accounts audited attracts a penalty under Section 271B of 0.5% of turnover or gross receipts, capped at ₹1,50,000. The penalty need not be levied where there was reasonable cause, but that is an argument to be made after the fact rather than relied on in advance.
How we run an audit
We ask for the trial balance early rather than in the last week of September. The disallowances that hurt — late PF deposits, TDS defaults, cash payments over the limit, MSME dues under 43B(h) — are all identifiable well before the deadline, and several can still be corrected if they are found in time. An audit conducted in the final fortnight can only report problems; one started early can help you avoid some of them.