In India, tax compliance is a crucial aspect for businesses and professionals. Section 44AB of Income Tax Act mandates certain taxpayers to get their accounts audited by qualified professionals. The year 2025 brings notable updates to tax audit requirements under Section 44AB of Income Tax Act. These changes aim to streamline the audit process and reduce the compliance burden on smaller businesses.
Tax audits help maintain financial transparency and ensure proper tax collection. With the recent changes in Section 44AB of Income Tax Act, many taxpayers need to understand the new rules that affect their filing obligations. Knowing these updates helps avoid penalties and ensures smooth tax compliance.
This article will explain everything about tax audit under Section 44AB of Income Tax Act, including the latest 2025 updates, eligibility criteria, and deadlines. We will also explore how proper financial planning, including home loan management, can impact your tax audit requirements.
What is a tax audit
A tax audit under Section 44AB of Income Tax Act is an examination of accounts by a Chartered Accountant who verifies if the taxpayer has correctly maintained books of accounts. The auditor checks if income and expenses are recorded properly and tax calculations are accurate. This audit is mandatory for businesses and professionals crossing certain turnover thresholds.
Tax audit differs from normal audits as it focuses specifically on tax compliance rather than just financial accuracy. The auditor must submit the report in prescribed forms - Form 3CA/3CB along with Form 3CD. The audit ensures taxpayers follow proper accounting standards and tax rules.
Section 44AB of Income Tax Act makes this audit mandatory to prevent tax evasion and ensure proper revenue collection. The government regularly updates the provisions to reflect changing economic conditions.
What are the objectives of tax audit
The tax audit under Section 44AB of Income Tax Act serves several important purposes:
- Ensure proper maintenance of books of accounts: Tax audit ensures businesses follow standardized accounting practices, making financial reports more reliable. This helps both the taxpayer and the tax department maintain clarity.
- Verify accuracy of income reporting: The audit confirms that all income sources are properly disclosed and reported, preventing intentional or accidental under-reporting. This promotes tax honesty.
- Check compliance with tax laws: Auditors verify that the taxpayer has complied with all applicable tax provisions under the Income Tax Act. This reduces future complications with tax authorities.
- Reduce tax evasion: Regular audits discourage taxpayers from hiding income or inflating expenses. The audit creates accountability in the system.
- Simplify assessment procedures: Pre-audited accounts make the tax department's assessment process smoother and faster. This benefits both the department and the taxpayer.
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What is the turnover limit for income tax audit
Section 44AB of Income Tax Act specifies different turnover thresholds for various categories of taxpayers. The 2025 updates have modified these limits:
Category of Taxpayer |
2024 Audit Limit |
2025 Audit Limit |
Detailed Conditions (Explanation) |
Business (Cash transactions > 5%) |
Rs. 1 crore |
Rs. 1 crore |
A tax audit is compulsory if the total turnover crosses Rs. 1 crore and cash transactions are more than 5% of total receipts or payments. |
Business (Cash transactions ≤ 5%) |
Rs. 10 crore |
Rs. 10 crore |
If both cash receipts and cash payments are not more than 5% of total transactions, the tax audit limit increases to Rs. 10 crore. |
Business (Digital transactions ≥ 95%) |
Rs. 10 crore |
Rs. 15 crore |
If 95% or more transactions are done digitally, the audit limit is raised to Rs. 15 crore. This applies only if the remaining 5% or less are in cash. |
Professional |
Rs. 50 lakh |
Rs. 75 lakh |
A professional (doctor, architect, etc.) must get accounts audited if gross receipts exceed Rs. 75 lakh in a financial year. |
Business opting for presumptive taxation under 44AE, 44BB, 44BBB |
Not applicable |
Not specified (Audit required if conditions met) |
If the taxpayer declares profits below the prescribed rate under the scheme, then a tax audit is required. |
Business under 44AD (Presumptive scheme) |
Not applicable |
Not specified (Audit required if conditions met) |
Audit applies if the taxpayer declares lower profits than the presumptive rate and total income exceeds Rs. 2.5 lakh. |
Business opted out of 44AD in any one of 5 years |
Not applicable |
Not specified (Audit required if conditions met) |
If the taxpayer opts out of 44AD in any one year, they cannot re-enter for the next 5 years. During this period, if income exceeds Rs. 2.5 lakh, audit is required. |
Professional under 44ADA (Presumptive scheme) |
Not applicable |
Not specified (Audit required if conditions met) |
Audit is required if profits are declared below 50% of gross receipts and income exceeds the basic exemption limit (Rs. 2.5 lakh). |
Business Loss (not under presumptive scheme) |
Rs. 1 crore |
Rs. 1 crore |
Even in case of business loss, if turnover exceeds Rs. 1 crore, a tax audit is applicable. |
Business Loss and total income exceeds exemption limit |
Rs. 1 crore |
Rs. 1 crore |
If the taxpayer incurs a loss and total income exceeds Rs. 2.5 lakh, a tax audit is required when turnover crosses Rs. 1 crore. |
If your business turnover exceeds these limits, you must get your accounts audited by a Chartered Accountant. The threshold increase for professionals and digital transactions aims to promote cashless economy and reduce compliance burden on smaller entities.
Section 44AB of Income Tax Act now also includes special provisions for startups and small businesses to ease their compliance requirements during initial years.
Cases where the accounts of a person are required to be audited under other laws
Sometimes, taxpayers already get their accounts audited under other laws like the Companies Act, Banking Regulation Act, or Cooperative Societies Act. Section 44AB of Income Tax Act recognizes these situations.
If your accounts are already audited under another law, you still need a tax audit if your turnover exceeds the limits mentioned under Section 44AB of Income Tax Act. However, the same auditor can conduct both audits simultaneously to minimise duplication of effort.
The tax audit focuses specifically on tax-related compliance, while audits under other laws might have different objectives. For example, an audit under the Companies Act checks corporate governance and shareholder protection aspects.
The auditor must still file Form 3CA and Form 3CD even if other audit reports exist. This ensures the tax department receives standardised information focused on tax compliance.
What constitutes an audit report?
The tax audit report must be submitted using a specific format per the Income Tax Act.
If a business or profession is already subject to an audit under any other law, then Form 3CA must be used.
If no other legal requirement for audit exists, then Form 3CB is the appropriate format.
For non-resident entities or foreign companies receiving royalties or technical service fees from Indian sources or the government, Form 3CE is applicable.
Regardless of the form used (3CA, 3CB, or 3CE), the auditor must also submit Form 3CD, which details various particulars forming part of the audit report.
What is the income tax audit last date for FY 2024-25 (AY 2025-26)?
For the assessment year 2025-26, the last date for filing tax audit reports under Section 44AB of Income Tax Act is September 30, 2025, for most taxpayers. Those dealing with international transactions must file by November 30, 2025.
The government occasionally extends these deadlines if taxpayers face widespread difficulties. However, it's advisable not to rely on extensions and plan your audit well in advance. Delayed audits often result in rushed work and possible errors.
Section 44AB of Income Tax Act imposes penalties for late filing, so meeting deadlines is crucial. The extension in 2025 provides small relief, but taxpayers should still maintain their books regularly rather than scrambling at the last minute.
Starting the audit process early gives you time to address any issues discovered during the audit. You may already qualify for home financing that offers tax benefits. Check your eligibility by entering your mobile number and OTP to explore options from Bajaj Finserv.
How and when tax audit reports shall be furnished?
Under Section 44AB of Income Tax Act, tax audit reports must be filed electronically through the Income Tax Department's e-filing portal. The process involves several steps:
- The Chartered Accountant prepares and digitally signs the audit report.
- The taxpayer then reviews, approves, and digitally signs the report.
- The report is uploaded to the e-filing portal before the due date.
Beginning 2025, Section 44AB of Income Tax Act requires auditors to include more detailed observations on the taxpayer's internal financial controls. This aims to improve financial reporting quality across businesses.
The e-filing system automatically validates the report format and basic information. Any errors must be corrected before the system accepts the submission. The taxpayer receives an acknowledgment number after successful submission, which should be preserved for future reference.
Planning your taxes can help reduce audit complications. Check your loan offers by entering your mobile number and OTP to see how a Bajaj Housing Finance Home Loan could provide tax benefits through interest deductions.
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What is the penalty of non-filing or delay in filing tax audit report?
If a taxpayer who is obligated to get their accounts audited fails to do so, they may face a penalty. The amount of penalty imposed is the lower of the following:
0.5% of the total turnover, sales, or gross receipts, or
Rs. 1,50,000
However, no penalty will be imposed under Section 271B if the delay or failure was due to a reasonable cause. Some accepted reasons include:
Natural disasters
Resignation of the tax auditor or key accounting staff
Strikes, lockouts, or other labour issues
Uncontrollable loss of accounts
Illness or death of the partner responsible for financial records
Beyond penalties, non-compliance affects your financial credibility. Banks and financial institutions often request tax audit reports when evaluating loan applications. You may already be eligible for home loan options that provide tax benefits. Check your eligibility by entering your mobile number and OTP.
Conclusion
Understanding tax audit requirements under Section 44AB of Income Tax Act is essential for businesses and professionals in India. The 2025 updates bring welcome relief through increased turnover thresholds, simplified forms, and streamlined procedures. Staying compliant not only helps avoid penalties but also strengthens your financial credibility.
Financial planning plays a crucial role in tax compliance. Home loan interest deductions can significantly reduce your taxable income. Bajaj Finserv Housing Finance Home Loan offers several advantages:
- Interest rates starting at just 7.35%* p.a
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- Top-up loan facility up to Rs. 1 crore
The top-up loan feature provides additional funds for various needs without requiring fresh documentation. You can use this amount for business expansion, which might help manage your turnover relative to the Section 44AB of Income Tax Act thresholds.
Take a proactive approach to both tax compliance and financial planning. Check your eligibility for a Bajaj Housing Finance Home Loan today by entering your mobile number and OTP. Start your journey toward financial optimization while ensuring full tax compliance.
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