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Tax Audit Threshold, Section 63 (old 44AB): Who Must Get Audited?

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  1. Facts

    Tax audit under Section 63, Income-tax Act 2025 (old Sec 44AB) is one of the most misunderstood obligations in India. Most small businesses don't know they're required to get audited. And many audit-eligible businesses pay ₹1.5L penalty for missing it. Know the thresholds, they changed significantly in 2021 with higher digital cash thresholds.

  2. Provisions and law

    • Sec 63 (old 44AB(a))
    • Sec 63 (old 44AB(b))
    • Sec 63 (old 44AB(e))
    • Sec 446 (old 271B)

  3. Analysis

    Current tax audit threshold matrix: Business (goods/services): ₹1Cr OR ₹10Cr if 95%+ digital transactions. Profession (any): ₹50L OR ₹75L if 95%+ digital. Sec 58 (old Sec 44AD) opting but declaring < 8%/6%: audit regardless of turnover. Sec 58 (old Sec 44ADA) opting but declaring < 50%: audit regardless of receipts. What "95% digital transactions" means: Both receipts (money coming in) and payments (money going out) must be ≥ 95% through banking/digital channels. One large cash payment or receipt can disqualify you from the higher threshold. Example: ₹9.5Cr turnover, but paid rent in cash for 1 month (₹30K): that cash payment is 0.03% of total, likely within 5% cash. Check carefully. The Sec 58 (old Sec 44AD / 44ADA) trap: Business with ₹80L turnover opts for Sec 58 (old Sec 44AD; 8% presumptive = ₹6.4L income). Owner says actual profit is only ₹3L (37% of turnover, less than 8%). Two choices: (1) Declare ₹6.4L (8%) as presumptive, no audit.

  4. Conclusion

    1. Check turnover/gross receipts for the FY, compare with threshold
    2. Business: ≥ ₹1Cr (or ₹10Cr if 95%+ digital) → mandatory audit
    3. Professional: ≥ ₹50L (or ₹75L if 95%+ digital) → mandatory audit
    4. If Sec 58 (old Sec 44AD/44ADA): are you declaring the minimum (8% / 50%)? If lower → mandatory audit
    5. Appoint practicing CA for tax audit before August, they need time to prepare Form 26 (old Form 3CD)
    6. CA prepares Form 26 (old Form 3CB; or Form 26 (old Form 3CA) if also under any other statute) + Form 26 (old Form 3CD)

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