Tax Audit Under Section 63 (Old Section 44AB): Applicability for Tax Year 2026-27

Every practitioner who has filed a tax audit report knows Section 44AB by heart. From tax year 2026-27 onward, that citation changes. The Income Tax Act, 2025 has renumbered the provision as Section 63, and clients will start seeing this new number on audit reports, notices, and portal utilities. The substance of the law hasn't moved much, but a few things are worth getting straight before the filing season arrives, because a wrong citation or a missed nuance in the new structure can cause real trouble at assessment stage.

Section 44AB Becomes Section 63 — What Actually Changed

The renumbering itself is cosmetic. What matters is whether the underlying compliance obligation shifted, and largely it hasn't. The monetary thresholds that trigger a mandatory audit remain where they were under the old Act:

The ₹10 crore relaxed threshold isn't a blanket exemption — it only applies where the business genuinely runs on banking channels, cheques, UPI, and digital payments, with cash receipts and cash payments each staying under 5% of the total. A trader in Raipur who does most of their billing digitally but still collects a meaningful chunk of sundry cash from smaller buyers should run this 5% test carefully before assuming they're outside audit scope. We've seen businesses miscalculate this by looking only at cash sales and forgetting cash payments made to suppliers and staff — both legs of the test have to pass.

One structural change under the new Act is worth flagging even though it doesn't touch the numbers: reporting has moved to a more consolidated, table-based format across several provisions of the Income Tax Act, 2025, replacing scattered cross-references from the 1961 Act. Practically, this means the audit provision itself reads more self-contained, but the compliance substance — who needs an audit, and when — tracks the old law closely.

The Presumptive Taxation Overlap

This is the part that catches people out every year, and it hasn't gone away. Under the old Section 44AD, a business could declare presumptive income at 6% (digital receipts) or 8% (cash) of turnover and skip both audit and detailed books. Under the new Act, this presumptive scheme sits in a consolidated provision (commonly referenced as Section 58, covering what used to be 44AD, 44ADA, and 44AE) — but the trigger for audit when you step outside the presumptive rate is still very much alive.

Here's the scenario we run into constantly. A proprietorship trading in construction hardware has turnover of ₹90 lakh — under the ₹2 crore ceiling for presumptive business income. The books actually show a profit of ₹4.5 lakh, which is about 5% of turnover, below the 8% presumptive rate. If the proprietor's total income (after this business income plus any other income) exceeds the basic exemption limit, declaring profit below the presumptive rate takes the business straight into mandatory audit — even though turnover is nowhere near the general ₹1 crore threshold. This is a genuinely stricter reading than many taxpayers expect, because they assume the ₹1 crore or ₹2 crore turnover number is the only trigger that matters. It isn't. A dip below the presumptive rate, combined with income above the exemption limit, does the same job.

We've also noticed some recent commentary suggesting the new Act tightens this further by removing certain exemptions that previously existed for people who simply chose not to opt into presumptive taxation at all, rather than opting in and then falling below the rate. If a client has been treating "I never claimed 44AD" as a reason to avoid audit scrutiny on a low-profit return, that assumption needs re-checking against the actual return filed for tax year 2026-27, ideally with a fresh read of the specific provision rather than relying on last year's practice.

Form 3CA, 3CB and 3CD — Do the Forms Change Too?

This is a fair question and the honest answer is: as of now, the forms themselves — Form 3CA (for entities whose accounts are audited under another law), Form 3CB (for others), and Form 3CD (the detailed statement of particulars) — continue to be prescribed and referenced by their existing numbers under Rule 6G of the Income Tax Rules. There's no confirmed public notification renumbering these forms to match the new Section 63 citation. It's possible the CBDT issues a fresh set of rules or renumbered forms closer to the actual filing cycle for AY 2027-28 (tax year 2026-27 returns), but nothing formal on that front has been notified as of this writing. Firms should keep checking the income tax e-filing portal and CBDT notifications rather than assuming the forms stay static forever — but for now, 3CA/3CB/3CD remain the working document names, just cross-referencing Section 63 instead of Section 44AB in the audit opinion.

Due Date and the Section 271B Penalty

The tax audit due date of 30 September (for taxpayers not subject to transfer pricing reporting) is unchanged. This is one of the more settled points — nothing in the new Act's transition suggests a shift in the audit due date architecture, which continues to sit ahead of the general ITR filing deadline to allow audited figures to feed into the return.

Failure to get accounts audited, or failure to furnish the report by the due date, continues to attract a penalty under the provision equivalent to the old Section 271B — 0.5% of turnover or gross receipts, capped at ₹1,50,000. The exact new section number for this penalty provision hasn't been something we've found clearly confirmed in public commentary yet; some sources point to it being addressed under a renumbered clause in the new Act's penalty chapter. What's settled is the quantum and the reasonable-cause defense: if a client can show a genuine reason for the delay — a fire, a partner's serious illness, non-availability of essential records due to circumstances beyond control — the penalty can be waived, and this "reasonable cause" escape route has survived every past recodification and is expected to survive this one too.

For firms managing a client base that straddles both regimes this transition year — some entities still reporting under old-Act citations for earlier years pending assessment, others filing fresh under the new Act — the practical discipline is simple: get the citation right on every audit report you sign, cross-check the presumptive taxation position before assuming turnover alone decides audit applicability, and don't wait until August to start the exercise. The forms haven't changed yet, but the year has, and clients rarely distinguish between "the law changed" and "my CA missed something."

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