Tax Audit in Raipur — Section 63 (formerly Section 44AB)

When a tax audit applies

For businesses. Where total sales, turnover or gross receipts exceed ₹1 crore in the year. That threshold rises to ₹10 crore where cash receipts and cash payments each do not exceed 5 per cent of total receipts and total payments respectively.

The 5 per cent condition is stricter than it first appears, because it must be satisfied on both sides independently. A business with negligible cash receipts but 8 per cent of its payments in cash does not get the higher threshold. For businesses in Raipur that still settle a proportion of freight, labour or small purchases in cash, this is worth measuring during the year rather than discovering afterwards.

For professionals. Where gross receipts exceed ₹50 lakh. The enhanced ₹10 crore threshold does not apply to a profession — the limit remains ₹50 lakh however the receipts are collected.

Where declared profit falls below the presumptive rate. This is the trigger that has changed, and it is dealt with in its own section below.

Other cases. Certain specified businesses and situations carry their own audit requirements irrespective of the general thresholds. We check applicability on the facts rather than by reference to turnover alone.

The change under Section 63 that few have noticed

Section 63 of the Income-tax Act, 2025 is the successor to Section 44AB, and it applies from Tax Year 2026-27 — income earned from 1 April 2026 onwards. Most of what it contains is carried forward unchanged: the ₹1 crore and ₹10 crore business thresholds, the ₹50 lakh professional threshold, the deemed profit rates and the five-year lock-in in the presumptive scheme all survive.

One thing does not.

Under the old Section 44AB, an audit was triggered on low declared profit only where the assessee had previously opted into the presumptive scheme and then moved out of it. A business that had never opted in was outside that trigger, and many low-margin businesses relied on exactly that — declaring actual profit below the deemed rate, with turnover under the threshold, and no audit obligation.

Under Section 63, the audit obligation attaches to any business within the presumptive framework that declares profit below the deemed rate, whether or not it ever opted into the scheme. The test is now the declared profitability itself, not the taxpayer's history of electing in and out.

Why this matters particularly in Raipur. Trading businesses here commonly operate on margins of one to three per cent — steel and iron stockists, commodity and cement traders, and distributors of all kinds. A business of that sort, within the turnover range eligible for presumptive taxation and declaring its actual thin margin, was previously outside the audit net if it had never opted in. From Tax Year 2026-27 it is not. This is likely to be the largest practical change in tax audit applicability for a trading town, and it is not something to discover in October.

We are reviewing this for clients now, before the year in which it first bites has closed.

Form 26 replaces Forms 3CA, 3CB and 3CD

For FY 2025-26, whose audits are being completed at present, the old forms continue to apply. The report is furnished in Form 3CA or Form 3CB with the statement of particulars in Form 3CD, under the Income-tax Act, 1961 — and this remains the case even though the report is being filed after 1 April 2026, because it relates to a year that ended before that date.

For Tax Year 2026-27 onwards, a single consolidated Form 26 replaces all three. It is prescribed under the Income Tax Rules, 2026, and applies to tax years commencing on or after 1 April 2026.

Form 26 is not simply a renumbering. It carries substantially more clauses than the old Form 3CD, with expanded disclosure on partner and member details, on presumptive taxation status, and on changes in business activity during the year. The practical consequence is that records need to support disclosures that were not previously called for — which is an argument for getting the books in order during the year rather than at audit.

Due dates

For FY 2025-26, the audit report is due by 30 September 2026, and the income tax return in an audit case by 31 October 2026.

The report falls due a month before the return, and it is the earlier date that governs the work. A business that begins thinking about its audit in October has already missed the date that matters. Where transfer pricing provisions apply, both dates move a month later.

Penalty for failing to have an audit or to file the report

Where a person required to have accounts audited fails to do so, or fails to furnish the report by the specified date, the exposure is 0.5 per cent of total sales, turnover or gross receipts, or ₹1,50,000, whichever is lower.

Two points are worth noting. On any turnover above ₹3 crore the ₹1,50,000 ceiling bites, so the exposure is capped in absolute terms — but it is a real amount for a business that simply overlooked the requirement. And under the new Act this amount is characterised as a fee rather than a penalty, a change intended to reduce disputes about intent. Relief on the ground of reasonable cause has historically been available; whether the change in characterisation affects that is a question that will take time to settle.

The larger cost of not having an audit is usually not the fee. It is that the return then rests on accounts nobody has examined, which is precisely the position from which reassessment and disallowance proceedings become difficult to defend.

Presumptive taxation and tax audit are two different tests

These are routinely confused, and the confusion causes real errors.

Eligibility to opt for presumptive taxation is governed by its own turnover limits, which are lower than the audit thresholds, and which also carry a cash-receipts condition that raises them where receipts are substantially non-cash. A business above those limits cannot use the scheme at all.

Whether a tax audit applies is a separate question with its own, higher thresholds.

So a business can be ineligible for presumptive taxation and still not require an audit, or be eligible for presumptive taxation and require an audit because it declares less than the deemed rate. The two sets of figures are not interchangeable and should never be used as though they were. We work out both positions for a client rather than one.

A further point on the presumptive scheme: once opted into, it carries a lock-in, and moving out has consequences for later years. That decision is worth taking with the five-year horizon in view rather than one year at a time.

Who we conduct tax audits for in Raipur

Traders and distributors. Steel and iron, cement and building materials, coal, commodities, hardware and pharmaceutical distribution — high turnover on thin margins, where stock valuation, creditor confirmation and the cash-transaction percentage are the matters that determine both applicability and the audit itself.

Manufacturers and processing units. Sponge iron, rolling and re-rolling, and rice milling, where consumption ratios, yield, job work and by-product accounting are central.

Works contractors. Running-account bills, retention money, work-in-progress and the year in which revenue is recognised, alongside substantial tax deducted at source that must be matched.

Transporters. Vehicle-wise records, freight income, and the presumptive scheme available to operators of goods carriages, which has its own rules distinct from the general one.

Professionals. Practices whose gross receipts have crossed the threshold — the ₹50 lakh limit arrives sooner than most professionals expect, and the enhanced digital threshold is not available to them.

Firms, LLPs and companies. Where the tax audit sits alongside a statutory audit, the two are conducted together, and the reconciliation between them is part of the work rather than an afterthought.

Scope of our work

We determine whether an audit applies, testing turnover, the cash-receipt and cash-payment percentages, and declared profitability against the presumptive rate; conduct the audit and prepare the report in the form applicable to the year concerned; complete the statement of particulars, including the expanded disclosures required by Form 26 for years from April 2026; reconcile the audited accounts with the GST returns and the tax credit statement before filing, since differences between them are what attract enquiry; upload the report within time and file the return; and advise during the year on the records needed to support the disclosures rather than reconstructing them at the year end.

Where a client is close to a threshold, we flag it before the year closes, while the position can still be managed properly.