Tax audit limit: who needs an audit and when

Receipts by cheque or bank transfer count as non-cash; so do UPI and card payments. The 5% test applies separately to receipts and to payments, and both must pass.

• Trading and manufacturing: sales, net of returns and discounts on the invoice, excluding GST if GST is recorded separately.
• Futures and options: the absolute sum of profits and losses on each trade, plus premium received on options sold. Most retail F&O traders stay far below ₹10 crore on this basis, but a loss combined with income above the exemption limit and an earlier presumptive opt-in can still trigger an audit.
• Intraday equity: the absolute sum of profits and losses.
• Professionals: gross fees received, not profit.

• The audit report is due one month before the return due date: normally 30 September after the year, for a return due 31 October. Check for extensions announced by CBDT in any year.
• Under the Income-tax Rules, 2026, Forms 3CA, 3CB and 3CD are replaced by Form 26, filed by the CA on the e-filing portal and approved by the taxpayer.
• Audits of FY 2025-26, due in September 2026, still follow the 1961 Act and the old forms.
• A company or other entity already audited under another law gets the tax audit report on top, not instead.

0.5% of turnover or gross receipts, up to ₹1.5 lakh, unless you show reasonable cause. The return filed without the audit report can also be treated as defective. Filing the report late but before the return is usually far cheaper than skipping it.

• Presumptive tax: small businesses under the section 44AD scheme (now section 58) avoid audit if they declare at least 8% (6% for digital receipts) and turnover stays within ₹2 crore, or ₹3 crore with cash receipts up to 5%. See our section 44AD guide.
• Professionals under the presumptive scheme can go up to ₹75 lakh of receipts, with the 5% cash condition, declaring 50%; see our section 44ADA guide.
• Digital receipts: moving customers to UPI and bank transfers lifts the business limit from ₹1 crore to ₹10 crore.

Form 26 is a detailed statement, not a signature on the accounts. Expect the auditor to ask for:

• payments above ₹10,000 in cash to one person in a day, which are disallowed;
• TDS compliance on every payment category, since non-deduction leads to 30% disallowance;
• payments to MSME suppliers beyond 45 days (15 days without an agreement), which are disallowed until paid;
• GST turnover matched with the books;
• loans and deposits taken or repaid in cash above ₹20,000;
• related-party payments, depreciation schedules, stock records and quantitative details for manufacturers;
• any income or expense shown in the AIS but missing in the books.

Starting the audit in July rather than September usually turns up these issues while they can still be fixed.