Who Is Liable for Tax Audit Under Income Tax Act, 2025?

Who Has to Get Their Books of Account Audited Under Income-tax Act, 2025?

With effect from 1 April 2026, the Income-tax Act, 2025 has come into force, replacing the Income-tax Act, 1961. Accordingly, taxpayers as well as the Income-tax Department are now required to comply with the provisions of the new Act.

Brief History of Tax Audit

The concept of compulsory tax audit was introduced for the first time through Section 44AB of the Income-tax Act, 1961 by the Finance Act, 1984, with effect from 1 April 1985.

At that time, the provision generated considerable debate across the country. Many taxpayers opposed the introduction of compulsory tax audit, and several writ petitions were filed before various High Courts challenging its validity. Tax practitioners and advocates also expressed concerns because the audit under Section 44AB could only be conducted by a Chartered Accountant.

Initially, Section 44AB provided that:

• A person carrying on business was required to get the books of account audited if the total sales, turnover or gross receipts exceeded ₹40 lakh during the financial year.
• A person carrying on profession was required to get the books of account audited if the gross professional receipts exceeded ₹10 lakh.

Over the years, these monetary limits have been revised several times. Further, presumptive taxation provisions such as Sections 44AD, 44ADA and 44AE were introduced, reducing the compliance burden for eligible taxpayers.

Evolution of Tax Audit Limits

* Enhanced limit applicable where:

• Cash receipts do not exceed 5% of total receipts; and
• Cash payments do not exceed 5% of total payments.

If either of these limits exceeds 5%, the normal turnover limit of ₹1 crore applies.

Tax Audit Under the Income-tax Act, 2025

For the current tax year (Financial Year 2025-26 / Tax Year 2026-27), the corresponding provision is Section 63 of the Income-tax Act, 2025, which substantially continues the earlier provisions of Section 44AB.

Persons Required to Get Their Accounts Audited

Under Section 63, the following persons are required to obtain a tax audit:

1. Persons Carrying on Business

A person carrying on business must get the books of account audited if the total sales, turnover or gross receipts exceed ₹1 crore in a tax year.

However, this limit is increased to ₹10 crore where:

• Aggregate cash receipts (including sales, turnover or gross receipts) do not exceed 5% of total receipts; and
• Aggregate cash payments (including expenditure) do not exceed 5% of total payments.

2. Persons Carrying on Profession

A person carrying on a profession must get the books of account audited if the gross professional receipts exceed ₹50 lakh during the tax year.

3. Persons Opting Out of Presumptive Taxation

Tax audit is also mandatory where a person carrying on business or profession covered under Sections 58(2) or 61(2) of the Income-tax Act, 2025 claims profits lower than the deemed profits prescribed under those sections, subject to the conditions specified therein.

Conclusion

Although the Income-tax Act, 2025 has replaced the Income-tax Act, 1961, there is no significant change in the tax audit provisions. The threshold limits of ₹1 crore and ₹10 crore for businesses and ₹50 lakh for professionals continue under the new law. Taxpayers should therefore carefully examine their turnover, cash transactions, and eligibility under the presumptive taxation provisions to determine whether a tax audit under Section 63 is applicable.

Extract of Section 63, of Income Tax Act, 2025 says as under:

1. Every person-

a. carrying on business shall, if his total sales, turnover or gross receipts, as the case may be, in business exceeds, one crore rupees in any tax year, subject to the provisions of clause (b);

b. In the case of a person whose-

i. aggregate of all amounts received including amount received for sales, turnover or gross receipts during the tax year , in cash, does not exceed 5% of the said amount; and

ii. aggregate of all payments made including amount incurred for expenditure, in cash, during the tax year does not exceed 5% of the said payment,

Clause (a) shall have effect as if for the words “one crore rupees” the words “ten crore rupees” had been substituted;

(c) carrying on profession shall, if his gross receipts in profession exceed fifty lakhs rupees in any tax year.

2. If the person is carrying on business or profession, refered to in section 58(2) or 61(2) and the profit and gains from such business or profession are claimed to be lower that the deemed profit as referred to in the same sections.